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Tasks of economic examination of documents of financial and credit operations

General Provisions

An economic examination is a documentary confirmation (study) of the laws of formation, reflection in the registers of accounting, and in reporting information on indicators of economic activity of enterprises; study of the correctness and completeness of the formation of income, expenses and results of activities, the formation of assets, liabilities and equity, bankruptcy and liquidation of enterprises, lease relations, the presence and amount of losses incurred, taxation, including transfer pricing, lending and other financial transactions related to cash flows.

The subject of economic examination is factual data (information) on committed offences of an economic nature: abuses in accounting and control, in the organization of production, and production-sharing; violation of methods and standards in planning, financing and lending to economic activities; causing material damage to entrepreneurial activity or preventing timely detection of facts that lead to inefficiency, unprofitability of production, violations in the field of taxation and transfer pricing.

The objects of forensic economic examination are primary documents confirming the implementation of a business transaction and containing basic information about it, accounting registers containing in a systematic form information on certain accounting objects, data on the formation of the object of taxation and determining the amount of taxes and fees payable to the budget, financial statements including descriptions of applicable accounting policies,  tax reporting, other documents containing reliable information related to the subject of research.

Types of economic examination are:

  • examination of accounting, tax accounting and reporting documents;
  • examination of documents on the economic activity of enterprises and organizations;
  • examination of documents of financial and credit transactions.

Tasks of economic examination

The tasks solved by economic examination should be divided separately into different subtypes of economic examination.

The peculiarity of the tasks and methods of economic examination in Ukraine is the instability of legislation in terms of accounting, taxation, instability of legislation that determines the general economic conditions for the functioning of business entities, which complicates the writing of methods, requires deepening their universality and ensuring insensitivity to changes in legislation, the need for constant review and adaptation of existing methods to changes in legislation and economic conditions.

According to the requirements of the Instruction on the appointment and conduct of forensic examinations and expert research, approved by the order of the Ministry of Justice of Ukraine No. 53/5 of 08.10.1998 (hereinafter – the Instruction No. 53/5), conducting audit actions (determination by experts-economists of any economic indicators without prior documentary inspections of financial and economic activities by the subject of control) does not belong to the tasks of economic examination.

Tasks of economic examination of documents of financial and credit operations

The tasks of this type of economic examination are related to the activities of banking and non-bank financial institutions.

This subtype of economic examination can be divided into areas – examinations related to the implementation by banks/financial institutions of active operations for issuing loans, the implementation of factoring schemes, the provision of property in financial leasing, operations with bills of exchange and other securities, the provision of bank guarantors, the opening of letters of credit, other active operations; passive operations of banks/financial and credit institutions to attract, accrue and pay interest and return of deposits, other passive operations; accounting of activities of banking/non-bank financial and credit institutions, accounting of assets, liabilities, equity, income expenses and financial results.

The main tasks of the examination of documents of financial and credit operations are to determine:

  • Documentary validity of registration of banking operations for opening accounts, cash flows on accounts;
  • documentary validity of registration and reflection in the accounting of operations for the issuance, use and repayment of loans;
  • documentary validity of registration and reflection in the accounting of banks of their financial and economic activities;
  • compliance with the reflection of financial and economic operations of banks with the requirements of regulatory acts on accounting and reporting;
  • documentary validity of reflection of financial and business transactions on the calculation and payment of taxes by banks and their compliance with accounting and reporting data, current legislation;
  • documentary validity of operations on deposits in banking and other financial institutions;
  • documentary evidence of balances and movement of funds on bank accounts;
  • documentary evidence of factoring transactions and proper fulfillment by the parties of the economic part of the terms of the factoring agreement;
  • documentary confirmation of transactions within the framework of opening a letter of credit, as well as proper fulfillment by the parties of the conditions of opening and disclosure of a letter of credit;

Additional explanations for certain tasks of examination of documents of financial and credit transactions.

Implementation of credit operations by banks/non-bank financial institutions.

The most common tasks for research in the examination of documents of financial and credit operations are tasks related to the receipt, use and repayment of loans/loans.

The task of examination of credit operations may be as follows:

  • study of the essence and content of settlement transactions, their reliability, legality and correctness of reflection on the relevant accounts and sub-accounts of accounting;
  • research whether the debt is hidden in any other accounts;
  • study of receivables or payables, the claim period for which has expired, and verification of the correctness of its reflection in analytical and synthetic accounting, the order of write-off;
  • confirmation of the current and expected solvency of the borrower at the time of obtaining a loan or at any time when using credit funds;
  • confirmation of the reasons for non-payment by the borrower of the loan debt;
  • study of the correctness of reflection in the accounting of short-term and long-term loans; verification of compliance of information in the registers of analytical and synthetic accounting and in financial statements;
  • research on the misuse or use of credit, weakening of the control functions of banking institutions.

The procedure for the execution of the examination, methodology, regulatory framework, and list of documents used by the expert for the purpose of conducting research significantly depends on the type of loan under which there is a dispute between the parties.

Features of the appointment of economic examination

Together with the document on the appointment of the examination (involvement of an expert), the expert should provide accounting and tax accounting documents that contain initial data to resolve the issues posed. Such documents may include receipt and expense invoices, tax invoices, warrants, reports of materially responsible persons, warehouse accounting cards, cash books, inventory materials, audit reports, timesheets, work orders, acts of acceptance of work performed, employment contracts, payroll, bank statements, payment orders and requirements, liability agreements, accumulative (negotiable) statements, journals-orders, memorial orders on balance sheet accounts,  general ledgers, registers of tax invoices, tax returns, balance sheets and other primary and consolidated documents of accounting and tax accounting and reporting.

If accounting is carried out electronically using specialized software, the expert is provided with registers of accounting and tax accounting in printed form, necessarily certified in the prescribed manner. Additionally, they can be provided at the request of an expert on electronic media.

If the examination is appointed to verify the conclusions of the documentary audit, the document on the appointment of the examination (involvement of an expert) indicates which conclusions and for what reasons raise doubts (contradict other case materials, unconvincingly substantiated by financial inspectors, etc.).

If necessary, to determine which documents should be provided to the expert for research in each particular case, it is advisable to consult an expert economist. To conduct the study, it is necessary to provide original documents or duly certified high-quality copies.

Documents should be systematized in chronological order (by relevant periods), filed, laced and numbered.