Baring Brothers: Operational Management

Baring Brothers Case Study
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Baring Brothers Case Study
1 Identify the specific roles/responsibilities (i.e. failures) of
1 Internal Auditor
Internal auditors ensure there is objective and independent assurance that there is true and fair financial reporting. An evaluation of the internal control system helps in reducing risks where there is a focus on detecting processes and ensuring potential improvement. The internal and external auditor failed to examine internal control weaknesses and operation risks. The auditors also ensure there is accuracy and compliance with financial reporting requirements with the financial reports being transparent. Disclosure of relevant and reliable financial information should have been prioritized, but the internal auditors failed to notice cumulative losses. Internal auditors offer recommendations to reduce financial risks and ensure the financial record-keeping processes. Managing relevant information flow with the top managers and board focusing on business operations and compliance with the bank’s policies and banking regulations
b. External Auditors
While the top managers prevent and detect errors and frauds, the external auditor considers errors or fraud and how this affects financial statements and reports. External Auditors examine the financial compliance and compliance with regulations and laws and communicate findings on financial reports. The external auditors should have communicated about the risk of fraud after evaluating the internal controls and detecting anomalies. Baring Brothers suffered derivatives-related losses partly because there was poor supervision and management of derivatives.
c. Top Management
The top management, especially the CEO, design and implement an effective internal control system and influence the control environment at Baring Brothers. However, the top managers at Baring Brothers failed to monitor the risk-management controls and oversee operations. For instance, there was little supervision of Nick Leeson, a top derivatives trader who engaged in highly speculative trading. There were effective internal risk-management procedures that Leeson increased his exposure in 1995 that h...