State Bank of Pakistan (SBP) is found to have “overstated” its consolidated financial statements for fiscal year 2010-11 by over Rs25 billion, this was observed by auditors of bank’s financial accounts in their qualified opinion. Observation was made by central bank’s auditors, M/s Ernst and Young Ford Rhodes and M/s KPMG Taseer Hadi and company, in their “independent report” to shareholders on financial statements of SBP and its subsidiaries, SBP Banking Services Corporation and National Institute of Banking and Finance (Guarantee) Limited.
According to auditors, central bank had “overstated” financial statements of two of its departments, banking department and issue department, by a huge accumulated sum of Rs25.734 billion for previous financial year. SBP, as audit report states, has overstated assets of issue department and banking department by Rs5.987 billion and Rs6.880 billion, respectively. “Accordingly, assets of the issue department and banking department are overstated by Rs 5,987 million and Rs6,880 million,” audit report says under the head of “basis for qualified opinion”. Auditors further observed that financial accounts of bank’s banking department had been exaggerated on account of liabilities and gold reserves the department held. Overstatement amounts to Rs12.867 billion, auditor report shows.
“The liabilities and unrealised appreciation on gold reserve of the banking department are overstated by Rs8,522 billion and Rs4,345 billion, respectively,” report noted.
Moreover, central bank also confused auditors by not netting off assets and liabilities of banking department on account of provisioning related to banks’ assets recoverable from governments of India and Bangladesh (former East Pakistan). According to audit report, SBP and its subsidiaries, denominated together as group in the report, had shown a provisioning of Rs2.464 billon as “other” liability. “The group has maintained a provision of Rs2,464 million relating to net assets recoverable from the Reserve Bank of India, the Government of India and those pertaining to transactions in Bangladesh.”
“This provision has been recorded as other liability of the Banking Department and the relevant assets and liabilities have not been netted off,” report added. In their “qualified opinion”, auditors declared that except for financial effect of aforementioned over-statements, the consolidated financial statements were giving a true and fair view. “In our opinion, except for the financial effect of the matter stated in the preceding paragraph, the consolidated financial statements give a true and fair view of the financial position of the group,” audit report concluded. Clarifying some of the auditors’ reservations, State Bank in Note 4.12 of its Consolidated Financial Statements said income on balances with Bangladesh was recognised as income on receipt basis. While on assets recoverable from India SBP’s Note 6.2 says realisation of these assets was subject to final settlement between governments of Pakistan and India. About provisioning, central bank said, provisions were recognised when group had a present legal or constructive obligation as a result of past events. “It is probable that an outflow of resources will be required to settle obligation and a reliable estimate of be amount can be made,” it said.
