Q.

Discuss the scope of the external auditors’ responsibilities in the Espírito Santo
debt shuffle?
A. After the financials and inner-workings of BES came under fire, the competence,
independence and objectivity of the external auditors, KPMG, were placed under close
scrutiny. KPMG had been the appointed auditor of BES since 2002. BES dismissed the
order and appointed KPMG for yet another four-year term. Being the auditor of both the
vehicles and the Espírito Santo entities, experts argued that KPMG should have been
able to identify the bank and its special entities' close relationships and illegal activities
earlier. In response to this financial scandal, KPMG admitted that although they audited
both BES and the special-purpose vehicles, they belonged to different jurisdictions and
were legally separated from Espírito Santo. KPMG Lisbon's auditors claimed that they
were not aware of the existence of the vehicles, which were separately audited by the
KPMG team in Jersey. In a statement released by its spokesperson in August, KPMG
affirmed its professionalism and quality of audit work.
Q. Discuss the pros and cons of having the same external auditors for different
entities within a company group. What are the key safeguards for ensuring auditor
independence in your country and are these safeguards adequate? Should there
be a mandatory rotation of external auditors?
A. A pro to having the same audit standards for external auditors’ entities would be that
audits would be more comparable and every company would be held to the same
standard. A con for external auditors’, is that clients are not going to require the same
amount of effort to get to know their operations as a public client, meaning that a lot of
time that is not necessary will be wasted.
 Leadership of the firm that stresses importance of ethical code Firm policies and
procedures to implement quality control
 Documented policies on compliance with ethical requirements including
independence.
 Policies and procedures to manage the reliance on fee received from a single client
 Use of different partners and staff on various assurance work
 Effective communication of firm’s policies to the4 personnel
 Monitoring of the ethical policies by a designated partner
 Specific work environment
 Involving another chartered accountant to review the work done
Section 139(2) of the Companies Act, 2013 (the Act) has mandated all listed companies
and certain categories of unlisted public companies and private companies to mandatorily
rotate their auditors (whether such auditor is an individual or a firm) once their auditor has
served office as an auditor for a period of 10 or more consecutive years (Rotation Period).
In this regard, the third Proviso to Section 139(2) of the Act has provided a moratorium
period, wherein companies incorporated prior to 1 April 2014, have been provided a time
period of 3 years from such date to comply with the requirement to rotate their auditors.
Therefore, beginning 1 April 2017, all companies who are required to rotate their auditors
under the Act, will have to rotate their existing auditors (Current Firm), if the Current Firm
has held office as such company’s auditor for a period of 10 years or more.

Q. Are the regulators and governmental bodies responsible for the inspection of
multi-jurisdictional transactions? How could they have better enforced checks and
balances on these companies’ transactions?
A. A total of 25 ministers and secretaries of state had links to Banco Espírito Santo or
Grupo Espírito Santo since 1976 Due to the scale and power the Espírito Santo Empire
possessed, governmental regulation was presumed, by the common man, to have been
present. During this crisis, Luxembourg's regulator Commission de Surveillance du
Secteur Financier did not supervise any holding companies of the Espírito Santo family,
while Portugal's BOP claimed that it had no responsibility for supervising the entities of
Espírito Santo. The Espírito Santo companies were mostly incorporated in Luxembourg
while BES, their main asset, was incorporated in Lisbon, Portugal. The Espírito Santo
fiasco further highlighted the deficiencies of the Luxembourger and Portuguese
regulators, and the potential loopholes that can manifest when companies span across
multiple jurisdictions.