AUDITING ASSIGNMENT 4

04/18/2016

AUDITING
ASSIGNMENT 4, Lecturer: Le Phuong Thao, MBA
Trinh Hoai Minh Hieu

BAFNIU 13 160

Nguyen Hoang Mai

BAFNIU 13 054

Vu Thi Thanh Hai

BAFNIU 13 022

Le Thi Ngoc Yen

BAFNIU 13 114

Cao Thanh Hang

BAFNIU 13 025

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EximBank Case & Creative Accounting method

Creative Accounting With The Use Of Repurchase Agreement

A repurchase agreement or repo is used by borrowers to raised short-term capital secured by the
transfer of assets to the lender. In terms of accounting treatment such transactions are recorded as
sales and not as short-term loans, with the assets being removed from the borrowers balance sheet.
The repo transaction comprised a parallel undertaking by the borrowers to buy back the same
security from the lender at a later date at a fixed price. In essence the arrangement is a cash
transactions combined with forward contract.
In short, A repurchase agreement (repo) is a form of short-term borrowing for dealers. The dealer
sells the assets to investors, usually on an overnight basis, and buys them back the following day.
For the party selling the assets (and agreeing to repurchase it in the future) it is a repo; for the party
on the other end of the transaction, (buying the assets and agreeing to sell in the future) it is a
reverse repurchase agreement.
From 2010 to 2014, Eximbank has use this technique to manipulate its financial performance to
avoid to be in a warning sign from Hochiminh Stock Exchange.
Specifically, the central bank found wrongdoing relating to ownership, share, lending and
guarantee at Eximbank after an inspection into the lender. These inspection results were informed
at Eximbanks general meeting on December 15, 2015. Eximbank sold properties to Eximland and
lent to the latter to acquire those properties, which sent Eximbanks income up to over VND1.1
trillion as of December 31, 2013. The lender used the proceeds to set up a fund and pay taxes and
dividends in 2010-2013.
The Hochiminh Stock Exchange has issued a warning against Vietnam Export Import Commercial
Bank (Eximbank-EIB) with effect from April 8 as the bank racked up losses of some VND834
billion by end-2014.
At the end of last year, Eximbank recovered nearly VND285 billion of the total amount while the
remaining VND832 billion will have to be taken back. A number of fees also occurred due to the
purchasing of properties.
We can see that by usung repo, Eximbank can remove its liabilities on the balance sheet, while
increases it income and proceeds from selling fixed assets as well as interest gain from lending to
Eximland, which made the profit of the bank wrongly recorded from (834,56) VND bil up to 114,01
VND bil.
It can be concluded that Eximbank used "Repo" to temporarily move assets off its balance sheet-essentially pretending to sell them although it promised to immediately buy them back, fearing that
creditors and stockholders would have grounds for the basis that this caused a "material
misrepresentation" of Eximbank's financial statements. After that, it is found that Eximbank has
"materially misleading" accounting and "actionable balance sheet manipulation." But just as KPMG
had signed off on the audited financial statement, Ernst & Young found no problem with
Eximbanks

Eximland is a real estate company that was established by Eximbank and other shareholders in
2007 with VND300 billion authorized capital. At the end of second quarter of 2015, the actual
authorized capital in the Eximland was up to VND418 billion. Therefore, any business transactions
that Eximbank has with Eximland will be considered as related-party transactions. Thus, Eximbank
should carefully disclose this relationship in their notes so that the investors could evaluate exactly
the profit from main operation. After the discovery of wrong audited profit of last year, Eximbank
has been put into special investigation about their relationship with Eximland by the Central Bank.
However, recently, the bank has announced that they had disposed all of their investment (11% of

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authorized capital) in Eximland and Eximland is no longer their subsidiary. Moreover, since 2014,
there was no longer revenue or transaction recorded from real estate disposal to Eximland in
Eximbanks financial statement like the previous years. Furthermore, the relationship between
Eximland and Eximbank was revealed more and more when the Board of Directors of Eximland has
been almost completely replaced with new ones and all members of Board of Directors who were
from Eximbank also resigned from Eximland since May of 2015. This raised a question of whether
Eximbank has used the related-party transactions with Eximland to manipulate their financial
statements and profit.
Retroactive (Hoi to) : Retroactive was applied to judge again one violation happening in the past
which was not discovered yet but it is discovered recently, at the present. In accounting field,
retroactive was guided in detail in Circular 200/2014/TT-BTC, article 127 and in Standard 29 of
VAS guidelines.
According to Standard 29 of VAS announced on February 15, 2015, provision 4, Retroactive
application is the application of a new accounting treatment to the transactions that occurred
before the day the treatment is effective. Besides, retroactive adjustment is the adjustment for
recorded transactions, reconciliation and disclosures in the financial statements as if the errors of
the last year accounting did not happen.

What is Incoterm?

Incoterms rules have become an essential part of the daily language of trade. They have been
incorporated in contracts for the sale of goods worldwide and provide rules and guidance to
importers, exporters, lawyers, transporters, insurers and students of international trade. In 2010,
the number of Incoterms rules has been reduced from 13 to 11. This has been achieved by
substituting two new rules that may be used irrespective of the agreed mode of transport DAT,
Delivered at Terminal, and DAP, Delivered at Place for the Incoterms 2000 rules DAF, DES,
DEQ and DDU. Under both new rules, delivery occurs at a named destination: in DAT, at the
buyers disposal unloaded from the arriving vehicle (as under the former DEQ rule); in DAP,
likewise at the buyers disposal, but ready for unloading (as under the former DAF, DES and DDU
rules). The new rules make the Incoterms 2000 rules DES and DEQ superfluous. The named
terminal in DAT may well be in a port, and DAT can therefore safely be used in cases where the
Incoterms 2000 rule DEQ once was. Likewise, the arriving vehicle under DAP may well be a
ship and the named place of destination may well be a port: consequently, DAP can safely be used
in cases where the Incoterms 2000 rule DES once was. These new rules, like their predecessors,
are delivered, with the seller bearing all the costs (other than those related to import clearance,
where applicable) and risks involved in bringing the goods to the named place of destination. All
rules in the incoterms must be written with a specific place. (Eg: FOB Hai Phong, EXW Ha Noi,
etc.)
The 11 Incoterms 2010 rules are presented in two distinct classes:
1.
EXW
FCA
CPT
CIP
DAT
DAP
DDP

RULES FOR ANY MODE OR MODES OF TRANSPORT

EX WORKS
FREE CARRIER
CARRIAGE PAID TO
CARRIAGE AND INSURANCE PAID TO
DELIVERED AT TERMINAL
DELIVERED AT PLACE
DELIVERED DUTY PAID

EXW Ex Works
Ex Works means that the seller delivers when it places the goods at the disposal of the buyer at
the sellers premises or at another named place (i.e.,works, factory, warehouse, etc.). The seller does
not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export,
where such clearance is applicable.

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FCA Free Carrier

Free Carrier means that the seller delivers the goods to the carrier or another person nominated
by the buyer at the sellers premises or another named place. The parties are well advised to specify
as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at
that point.
CPT Carriage Paid To
Carriage Paid To means that the seller delivers the goods to the carrier or another person
nominated by the seller at an agreed place (if any such place is agreed between parties) and that the
seller must contract for and pay the costs of carriage necessary to bring the goods to the named
place of destination.
CIP Carriage And Insurance Paid To
Carriage and Insurance Paid to means that the seller delivers the goods to the carrier or another
person nominated by the seller at an agreed place (if any such place is agreed between parties) and
that the seller must contract for and pay the costs of carriage necessary to bring the goods to the
named place of destination.
The seller also contracts for insurance cover against the buyers risk of loss of or damage to the
goods during the carriage. The buyer should note that under CIP the seller is required to obtain
insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will
need either to agree as much expressly with the seller or to make its own extra insurance
arrangements.
DAT Delivered At Terminal
Delivered at Terminal means that the seller delivers when the goods, once unloaded from the
arriving means of transport, are placed at the disposal of the buyer at a named terminal at the
named port or place of destination. Terminal includes a place, whether covered or not, such as a
quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks
involved in bringing the goods to and unloading them at the terminal at the named port or place of
destination.
DAP Delivered At Place
Delivered at Place means that the seller delivers when the goods are placed at the disposal of the
buyer on the arriving means of transport ready for unloading at the named place of destination. The
seller bears all risks involved in bringing the goods to the named place.
DDP Delivered Duty Paid
Delivered Duty Paid means that the seller delivers the goods when the goods are placed at the
disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at
the named place of destination. The seller bears all the costs and risks involved in bringing the
goods to the place of destination and has an obligation to clear the goods not only for export but
also for import, to pay any duty for both export and import and to carry out all customs formalities.

2.
FAS
FOB
CFR
CIF

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

FREE ALONGSIDE SHIP
FREE ON BOARD
COST AND FREIGHT
COST INSURANCE AND FREIGHT

FAS Free Alongside Ship

Free Alongside Ship means that the seller delivers when the goods are placed alongside the vessel
(e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss
of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all
costs from that moment onwards.

FOB Free On Board

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Free On Board means that the seller delivers the goods on board the vessel nominated by the
buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of
or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs
from that moment onwards.
CFR Cost and Freight
Cost and Freight means that the seller delivers the goods on board the vessel or procures the
goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on
board the vessel. the seller must contract for and pay the costs and freight necessary to bring the
goods to the named port of destination.
CIF Cost, Insurance and Freight
Cost, Insurance and Freight means that the seller delivers the goods on board the vessel or
procures the goods already so delivered. The risk of loss of or damage to the goods passes when the
goods are on board the vessel. The seller must contract for and pay the costs and freight necessary
to bring the goods to the named port of destination.

The seller also contracts for insurance cover against the buyers risk of loss of or damage to the
goods during the carriage. The buyer should note that under CIF the seller is required to obtain
insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will
need either to agree as much expressly with the seller or to make its own extra insurance
arrangements.

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References:
http://tuvan.webketoan.vn/Chuan-muc-so-29-Thay-doi-chinh-sach-ke-toan-uoc-tinh-ke-toanva-cac-sai-sot_164.html
http://dichvuketoandoanhnghiep.com/dich-vu/tt-200-2014-tt-btc-dieu-khoan-hoi-to.html
http://vietstock.vn/2015/07/lo-cua-eximbank-lien-quan-den-eximland-737-430981.htm