Sunday, June 4, 2017

When There Is a Potential Critical National Security Issue Involved, It Is Only Fair That the US Federal Government Should Be Able To Subpoena the Audit Workpapers of An External Auditor of a Relevant Entity

At its investor relations website, the VEB Group has its audited financial statements for many years.  These financial statements were audited by the Big 4 CPA firm Ernst & Young LLC (EY) for all of these years but 2015, which was audited by BDO.

VEB Group's Audited Financial Statements

When reviewing VEB Group's December 31, 2016 balance sheet on Page 8, it shows that this is clearly a Russian Government controlled bank since the Equity attributable to the Russian Government is 550.3 billions of Russian rubles, whereas the Non-controlling interest is only 5.4 billion of Russian rubles.

VEB Group's Total Loans to customers at December 31, 2016 was 1,904.5 billions of Russian rubles, which was a huge 53% of its Total Assets.  A year earlier, its Total Loans to customers was an even higher 2,580.3 billions of Russian rubles, which was an even much larger 59% of its Total Assets.  The New York Times disclosed that recently, a Russian business newspaper Vedomosti reported that about 40% of VEB's Loans were at risk of default.

VEB Group's Investment financial assets classified as available for sale were an additional 470.3 billions of Russian rubles at December 31, 2016.

VEB Group's Net Investment in leases were an additional 283.6 billions of Russian rubles at December 31, 2016.

So these three assets combined were 2,658.4 billions or a huge 74% of Total Assets at December 31, 2016.

So clearly in their investigations of the relationships between the members of the Trump Administration and the Russian Government, Robert Mueller as well as the US Senate Intelligence and the US House Intelligence Committees would be very interested in the detailed makeup of these three assets which would be shown in Ernst & Young LLC's audit workpapers and BDO's audit workpapers.

In addition, these three investigators would also be interested in the makeup of several other asset categories including Investments in associates and jointly controlled entities.

Also, at December 31, 2016, VEB Group has as its largest Liability, Debt Securities Issued of 1,024.6 billions of Russian rubles.  At December 31, 2015, there were a higher 1,179.9 billions of Russian rubles of Debt Securities Issued.  A recent New York Times article reported that before the US placed sanctions on Russia, Goldman Sachs, Citigroup and Morgan Stanley, between 2006 and 2013, helped VEB issue one bond issue after another to American investors.  Thus, it will be very helpful for the three US investigators to know just who are the bond investors providing financing to this bank, which is controlled by the Russian Government, which is an adversary to the US.  

On VEB Group's 2016 Consolidated statement of profit and loss, its Loss for the year was 111.9 billions of Russian rubles, which occurred even though VEB Group's bottom line earnings were bolstered by Government grants revenues of 211.9 billions of Russian rubles and also bolstered by Recognized Gains of 182.9 billions of Russian rubles from the disposals of loans of a state-related entity against the Russian Government guarantee.

These three US investigators might have to work with the UK where Ernst & Young is now legally headquartered to get copies of the recent audit workpapers.  On the other hand, BDO's world headquarters is in Chicago, Illinois USA.

However, the top technical people of all of  these CPA firms are frequently advised on these audits and they tend to be US citizens and thus they could be subpoenaed in the US. 

Russia's largest bank is SBERBANK, which is 52.3% controlled by the Central Bank of the Russian Federation.  At December 31, 2016, its Total Loans were a massive 17,361 billions of Russian rubles.  Its financial statements were audited by Big 4 CPA Firms pwc in 2016 and EY in 2011-2015.  The three US investigators would be very interested in the detailed makeup of SBERBANK's Loans which would be shown in both pwc and EY's audit workpapers.

Below here is the link to view SBERBANK's audited financial statements.

SBERBANK's Audited Financial Statements 

The same thing would apply to the external auditor's audit workpapers of the privately-held The Trump Organization, Trump Entertainment Resorts and other Trump Companies and all of the privately-held Kushner Real Estate Organizations.

But the difference here is that the focus of the US investigations of the Trump and Kushner financial statements and their related CPA Firm Audit Workpapers should be primarily on the makeup of the debt and the equity portions of the balance sheet rather than on the makeup of the asset side of the balance sheet.