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AAA Dec 22 > D1- Money laundering and NOCLAR > Flashcards

D1- Money laundering and NOCLAR Flashcards

1
Q

What’s money laundering ?

A

-It’s a process by which criminal attempt to conceal the true origins of their illegals proceeds
- And shows illegal proceeds are from a legal source

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2
Q

ISA FOR NOCLAR

A

ISA 250 : NOCLAR OR CONSIDERATION OF LAWS AND REGUALATIONS IN AUDIT OF F.S

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3
Q

What are the 3 stages in ML ?

A

stage 1: placement
stage 2: layering
stage 3: integration

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4
Q

explain placement stage

A
  • first stage in ML
  • Where illegal proceeds are introduced into the financial and economic system.
  • Where criminals will deposit illegal proceeds in small deposits into the business
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5
Q

explain layering stage

A
  • 2nd stage in ML process
  • where criminals want to use their money without raising suspicions.
    -So they create a series of complex transaction that involves transfer of money through several institutions and in several currencies.
  • It is done to hide the true origin of the proceeds and create difficulties for investigators in tracing the funds.
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6
Q

explain integration stage

A
  • last stage in ML process.
  • Involves conversion of illegal proceeds into legitimate form by purchase of assets like paintings, cars and houses.
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7
Q

Crime that goes through 2 stages of money laundering ?

A

Real estate ML - placement and integration

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8
Q

Who is FATF ?

A

Financial Action Task Force
- responsible for tackling ML cases and related reports

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9
Q

6 ML offences under FAFT :

A
  1. Tipping off
  2. Failure to disclose knowledge or suspicion of ML
  3. Acquiring, possessing or using proceeds from illegal activities.
  4. Aiding, counselling or concealing illegal activities
  5. Retaining funds from tax evasion.
  6. benefits obtained from bribery and corruption.
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10
Q

What’s tipping off ?

A

Where information which might prejudice/ disrupt the investigation is disclosed to a suspect or anyone by someone who is aware that police investigation has begun or is it about to begin.

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11
Q

Ethical guidance for auditors in respect of ML :

A

-Auditors should always report instances of ML or suspicions of ML to right and authorized parties and this is not breach of confidentiality.
- Instead it falls under auditor’s obligatory responsibility which is allowed by principles of ethics
- However, before reporting or disclosing in any cases first seek legal professional advice

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12
Q

Why auditors should seek legal and professional advice prior to report ML matter ?

A
  • to understand consequences of the ML matters
  • to understand whether ML matter is in public interest.
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13
Q

Anti money laundering program

A
  • All audit firms are required to have anti money laundering programs at the firm.
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14
Q

Who’s MLRO

A
  • Money laundering reporting officer
  • Who has sufficient seniority and experience to make reliable decisions of whether ML suspicion should be brought to attention of authorities.
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15
Q

Types of anti-money laundering programs :

A
  1. Appoint MLRO with sufficient seniority and experience
  2. Enhanced record keeping
  3. strong controls, policies and systems against ML
  4. Strong anti-ML reporting
  5. Know your client (KYC) procedures
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16
Q

Enhanced record keeping: anti ML

A
  • to keep records of clients for min. 5 years even after relationship with client has ended.
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17
Q

KYC procedures: anti ML

A
  • Carry out KYC procedures or client due diligence to establish identity of potential client before accepting new engagements.
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18
Q

Strong reporting

A
  • upon receipt of internal report, MLRO should consider circumstances surrounding the matters.
  • MLRO should document the process and assess whether ML suspicion to be reported to appropriate authorities.
  • Audit firm has legal duty to report ML suspicion even if it conflicts with their duty of confidentiality
19
Q

Anti ML controls, policies and systems

A
  • To protect firm itself being used for ML purposes.
  • provide training to employees on what to do in an event of ML suspicion or instance
  • Have system to generate and prepare reports quickly to avoid committing FAFT offence of failure to disclose ML suspicion.
20
Q

Questions to ask in KYC :

A
  • Who is client
  • Nature of business activities
  • Client’s business and economic purpose
  • Who owns and controls the client.
  • Client’s sources of funds
21
Q

Auditor’s responsibilities in relation to KYC

A
  1. Understand client’s business well
  2. Establish identity of beneficial owner who is not the client
  3. Investigate business relations reestablished
  4. responsibility of ongoing monitoring of client
22
Q

Understand client’s business: KYC

A
  • Auditors should obtain information and facts of the client from an independent and reliable source
  • like if client is individual then obtain official documents like passport
    -Client is company then certificate of incorporation.
23
Q
  1. Establish identity of beneficial owner
A
  • Beneficial owner is not the customer.
  • beneficial owner is an individual or group of individuals who ultimately own and control the company or on whose behalf the transactions or activity is carried out.
24
Q
  1. Understand business relationships re-established
A
  • auditors are req. to gain understanding of the purpose of it and intended nature of the business relationship.
  • such as client’s source of funds
  • such as nature of business activities
25
Q

how to know if business is operational ?

A

-obtain utility bills , rental agreements and key contracts with customers and suppliers

26
Q

auditors do this is tipping off ….

A

auditors shouldn’t report ML suspicion to TCWG as it is considered as tipping off but okay for fraud

27
Q

To whom should NOCLAR be reported to ?

A

1st- appropriate level of mgmt
2- TCWG
* unless prohibited by law
then 1st will be higher authorities like audit committee and external authorities

28
Q

if NOCLAR is assumed to be INTENTIONAL AND MATERIAL

A
  • Report to appropriate level of mgmt. or TCWG
29
Q

if NOCLAR is assumed to INVOLVE SENIOR MGMT.

A
  • report to next high level of authority - audit committee or regulators
30
Q

ISA 250 : Key points

A
  • Auditors have to consider impact of NOCLAR on F.S and the ROMM by considering various laws and regulations which client should comply with and how is auditor is req. to respond to NOCLAR.
  • If NOCLAR directly affects in determining material amts. in F.S then auditors to collect S& A evidence about NOCLAR
  • If NOCLAR is material and fundamental to operating of business but does not directly affect F.S - auditors to carry certain procedures
  • auditors have no formal responsibility for NOCLAR that is neither MATERIAL nor has DIRECT effect on F.S
31
Q

auditor’s responsibility in relation to guidance on NOCLAR:

A
  • To identify and be aware of instances or suspicions of NOCLAR as it can lead to material misstatement in F.S if mgmt. has provision and did not recognize it.
  • To respond appropriately to situations where NOCLAR is detected.
32
Q

Steps to follow if NOCLAR is detected :

A
  • Auditor should understand matter fully and clearly and document their findings
  • Should disclose matter to appropriate level of mgmt. or TCWG unless prohibited by law
  • if prohibited by law then report to audit committee or external authorities
  • Consider if matter to be disclosed to others in public interest or those who will be affected directly by it.
  • Before reporting or disclosing the matters in all cases, first seek proper legal professional advice due to duty of confidentiality.
  • if client does not address NOCLAR then auditor has right to withdraw from the engagement but only after taking further actions.
33
Q

NOCLAR framework for auditors:

A
  1. Obtain/ get understanding of the NOCLAR matter
  2. Address the matter
  3. Communication with respect to groups
  4. Determining if further actions needs to be taken
  5. determining if matter should be disclosed to appropriate authorities
  6. documentation
34
Q
  1. obtain an understanding of the matter
A
  • auditors are req. to gain a full and clear understanding of the matter including nature of the NOCLAR act and circumstances in which it occured.
  • auditors req. to have a good understanding of the environment in which client operates in
  • like relevant L& R affecting client’s business
  • req. to have relevant and sufficient knowledge abt L&R to undertake the assignment
  • To clarify instance of NOCLAR : consult with members of the firm / network firm / relevant professional body on confidential basis.
  • seek legal advice and discuss with appr. mgmt. or TCWG to gain clarification on understanding of facts, circumstances surrounding the matter and potential consequences
  • assess appropriate level of mgmt.
35
Q

Factors to consider in assessing appropriate level of mgmt. :

A
  • Mgmt.’s ability to carry out investigations and take appropriate actions
  • mgmt.’s potential involvement in the matter
  • mgmt.’s collusion in the matter with criminals
36
Q
  1. Address the matter
A
  • If NOCLAR is suspected or discovered then auditors should report it to appropriate level of mgmt. and TCWG and advise them :
    a) to take timely and appropriate actions to resolve the matter
    b) auditors should consider if matters to be disclosed to approp. authorities if there is legal duty or matter is in public interest
    c) Ensure their own compliance with L&R along with ISAs
37
Q
  1. Communication with respect to groups
A

-Auditors should consider their responsibilities in a group context such as whether to report NOCLAR or suspected NOCLAR to group engagement partner unless prohibited by law.

38
Q
  1. Determining if further actions to be taken
A
  • Auditor must evaluate appropriateness and effectiveness of mgmt.’s and TCWG’s response to the matter
  • by assessing timeliness of the response
  • by assessing extent of investigation performed
  • assessing extent of remedial action taken
  • Also auditors should objectively determine this by applying professional judgments and taking into account whether a reasonable and informed 3rd party can conclude auditor’s actions in public interest are appropriate
39
Q

types of further actions to be taken by auditors:

A
  • Disclose matter directly to appropriate authorities
  • Withdraw from engagement and client relationship.
    -But std. states withdrawal cannot substitute for other actions to be taken in guidance with NOCLAR.
    -Yet std. agrees in some jurisdictions withdrawal may be the only action available and is fine with it
40
Q

How do outgoing auditors cooperate with ingoing following withdrawal

A
  • Req. to provide information and facts relating to identified or suspected NOCLAR out of professional duty of which ingoing auditors should be aware of.
41
Q
  1. Determining whether matter to be disclosed to appropriate authorities
A
  • Based upon auditor’s professional judgment
  • auditor needs to consider nature and extent of actual or potential harm to investors, creditors, suppliers and others in public interest.
42
Q

Matters that have direct and material effect on F.S

A
  • Breach of environmental, public health and safety laws
    -Breach of data protection act
  • Money laundering
  • Fraud , bribery and corruption, tax evasion
43
Q

Matters that indicate disclosure to appropriate external authorities

A

– Entity involved in bribery and tax evasion
- breaches of regulation that can have an adverse impact on the following:-
a) Operating license
b) Financial markets
c) Public health and safety

44
Q
  1. Documentation
A
  • auditors are req. to document their entire process of compliance with NOCLAR guidance such as
  • Mgmt.’s and TCWG’s response
  • actions that were considered
  • judgements made
  • decisions taken

AAA Dec 22 (5 decks)

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