Please enable JavaScript.
Coggle requires JavaScript to display documents.
International Regulatory Environments for AA services - Coggle Diagram
International Regulatory Environments for AA services
Money laundering
Definition
A process
To hide the true origin of the proceeds of criminal activity
In order to provide a cover for the sources of their income
To hide the ownership of the proceeds of the criminal activity
In order to maintain control over the proceeds
3 stages
Placement
Into the financial system
Layering
Through several institutions to hide its true identity
Integration
Back into the legitimate economy
Significant impact on auditor
Key offences
Criminal property
Use
Acquire
Possess
Conceal
Arrange or becoming involved in an arrangement which might facilitate the below
Suspicions
Fail to report
Investigations
Tip off clients
Disclosing info that may prejudice the investigation
ACCA Guidance for members
IC and policies
Regular training for their staffs
To ensure that client identification procedures are carried out correctly
To ensure that suspicions are reported
Must ensure a clear procedures to report, has been communicated to staffs
Need to appoint one person in charge of the reporting, could be MLRO or MLCP
Client identification
Know your client/ Customer due diligence
Identity
Operating cash flow
Ownership structure
This is done before any work is undertaken
Record keeping
For at least 5 years
Client identification
All transactions of full audit trail
Recognition of suspicions
It is more than speculations, but short of proof based on firm's evidence
In order to recognise, need to understand the client well
Attention to transaction without visible lawful or economic purposes
Reporting suspicion transactions
Where members or staffs have recognise that funds are from crime, they should request MLRO to promptly report to the relevant authority
Tipping off
Where a report has been made at the identification stage, members should take extra care that carrying out those procedures would not tip off
Attempts to discourage clients from breaking the law is not tipping off
Client identification
It is a responsibility of auditor to gather information of clients that is by KYC or CDD
The information that should be gathered are
Who the client is? A company or individual
Business relationships? - Purpose and intended nature
Who controls it
The nature
Source of funds
Purpose? Business and economic purpose
Purpose
To get to know the client's business well in order to spot unusual business activity
CDD
Identify the customer & verify their identity using documents, information obtained independently
Individuals
Proof of address or passport
Company
Proof of incorporation
Identify any beneficial owner who is not the customer
Shareholders
Identify the purpose and intended nature of business relationships
Details of customer's business
Source of funds
Conduct ongoing monitoring to identify suspicions
If customer's identity cannot be identified, no work should be done
Risk based approach
Money laundering risk indicators
The use of large currency or bearer instrument transactions
High value deposits and withdrawals not characteristics of the type of account
Secrecy over transactions
Transactions routed through several jurisdictions
ISA 250 Consideration of Laws and Regulations in an Audit of FS
In doing the audit work, the auditor needs to recognise that if the client does not comply with the laws and regulations, it may materially affect the financial statements
Responsibility of management
Ensure that the company's operations follow the laws and regulations
Detect and prevent non-compliance
In doing so, management can
Monitor legal requirements and any changes to it. Ensure that operating procedures are designed to meet these requirements
Design and operate appropriate IC
Develop, publicise and follow the code of conduct. Ensure employees are properly trained and understand the code of conduct
Monitor the compliance with code of conduct and take disciplinary actions for employees who fail to follow
Engage legal advisers to assist in monitoring legal requirements
Maintain the register of significant laws and regulations which the company has to comply with, and a record of complaints
Auditor's consideration for compliance with laws and regulations
Auditors cannot be held responsible for NOCLAR
Audit that is undertaken may act as deterrent
Auditor only needs to consider the impact of NOCLAR to the FS
Auditor can assess the risk of MM by considering the compliance with laws and regulations
Auditor's response
If non-compliance have a material and direct effect
Obtain evidence of compliance
If non-compliance have a material but indirect effect
Take procedures to detect non-compliance
Audit procedures when possible NOCLAR has occurred
Obtain understanding of:
The nature of the act
Circumstances in which it has occurred
Seek further info to evaluate the effect on FS
The effect could be
Amendments to amounts and disclosures
Cast doubt to the going concern status if significant
All info and evaluations should be documented
Consider potential financial consequences
Whether needs disclosure
Whether affects the fair presentation of the FS
Report NOCLAR
To appropriate level of management or TCWG
If impossible, then report to audit committee or regulator
Sometimes, may need to disclose to public, for eg, pollution of environment. but still bound by confidentiality
Advisable to seek for legal advice before doing anything
Withdrawal from engagement
This should be the last action taken, that is, when the client does not want to take remedial actions that the auditors consider necessary and which have material effects on the FS
However, this could not be a substitute for auditor's response to the NOCLAR
Process for dealing with NOCLAR
Obtain an understanding of the legal and regulatory requirements
If NOCLAR is discovered, obtain further understanding
Evaluate the impact of NOCLAR on the FS
Report to appropriate level of management
Withdraw from engagement
Auditor's report
MM
If non-compliance has material effect on the FS which have not been amended
Qualified
Adverse
Insufficient/ inappropriate audit evidence
Not enough disclosure of compliance
Qualified
Disclaimer of opinion