Schedule A
CHRONOLOGY
Date	Event	

1984
	
BB&Co acquires the stockbroking business of Henderson Crosthwaite, led by Christopher Heath, and renames it BSL

17th September 1986
	
BFS is incorporated	

31st July 1989
	
Leeson joins the BSL futures settlements department in London	

6th April 1992
	
Leeson arrives in Singapore	

1st June 1992	
BFS granted corporate clearing membership of SIMEX and began clearing trades 

1st July 1992	
BFS begins executing trades on the SIMEX floor

3rd July 1992	
Leeson opens Account 88888

8th July 1992	
88888 excluded from the trade file and the London Gross report sent electronically to BSL

30th September 1992	
BFS year-end

1st October 1992	
BSL transfers ¥670 to BFS

2nd October 1992	
D&T commence field work on the BFS audit

16th October 1992	
D&T send audited consolidation packages

31st December 1992	
D&T send the BFS financial statements for the year ended 30th September 1992

15th March 1993	
BSL terminates the employment of Heath, Baylis and Martin

1st November 1993	
Barings implements solo consolidation of BB&Co with part of BSL for regulatory purposes.  After this date proprietary derivatives trading was booked to BSLL not BSL

3rd November 1993	
Announcement that Baker to take over responsibility for Barings’ derivatives trading businesses

15th November 1993	
D&T commence work on the 1993 audit of BFS

16th November 1993	
BFS 1st by volume on SIMEX

17th December 1993	
Announcement is made of the intended combination of BB&Co and BSL to form the Baring Investment Banking Group

31st December 1993	
BFS year-end

9th February 1994	
Payment of US$32 million by BSL to BFS, not related to identified trades or customer collateral

24th – 25th February 1994	
Hawes visits Singapore

28th February 1994	
D&T send to Jones BFS’ financial statements for the year ended 31st December 1993

1st March 1994
	
First “classic” Dollar Funding requested by Leeson	

18th March 1994	
BSL Risk Committee approves risk limits for the Japan derivatives trading books

March 1994	
Killian relocates to the United States from Tokyo

Early April 1994	
A book is opened for Leeson’s JGB switching 

20th May 1994 	
A book is opened for Leeson’s Euroyen switching 

16th June 1994	
BSL Risk Committee approve revised limits for the Japanese derivatives books.  These include intra-day limits for Leeson’s SIMEX trading

14th July 1994	
D&T resign as auditors of BFS

19th July 1994	
BSL internal auditors begin their work at BFS

22nd August 1994	
Manson faxes a copy of the draft internal audit report on BSS to Norris and provides copies to Bax, Jones and Marais in Singapore for discussion

21st September 1994	
Leeson is given a separate book for his Nikkei switching activity, with his income being separately reported from 23rd September 1994

7th October 1994	
Hawes visits Singapore, but meets Leeson in London on his return

17th October 1994	
C&LS start advance work on controls for 1994 audit of BFS

24th October 1994	
Internal audit report of the Baring Securities South Asia region (comprising BSS,BFS and PT Baring Securities Indonesia) circulated

26th October 1994	
Gueler expresses concern to Walz about the level of Leeson’s profits

November and early December 1994	
C&LS carry out early work on balances in BFS’ management accounts as at 31st October 1994

31st December 1994	
BFS year-end

1st January 1995	
Futures & Options Sales combined with FPG under Baker

12th January 1995	
Discrepancy later known as the  SLK receivable identified by C&LS

12th January 1995	
Hawes sends a copy of his note on the Singapore Project to Bax 

17th January 1995	
Kobe earthquake

27th January 1995	
Leeson and Jones fax a response on Hawes’ “Singapore Project” memo

3rd February 1995	
C&LS send to C&LL their audit reports on the consolidation schedules of BFS

5th February 1995	
Railton arrives in Singapore

17th February 1995	
C&LL give final clearance to C&LL Matters for the Attention of Partners for the BSL Group and sign an audit report to PLC on the BSL group consolidation schedules

23rd February 1995	
Leeson flees from Singapore

27th February 1995	
BFS suspended by SIMEX and Interim Judicial Managers appointed 

8th March 1995	
Heads of Agreement executed for the purchase by ING of certain assets and subsidiaries of the Barings Group

17th November 1995	
 
BFS placed in liquidation

SCHEDULE B 
Dramatis Personae and list of abbreviations
Agency trading: trading on behalf of the customers of a financial institution
ALCO: Asset and Liability Committee of BIB
APM: Audit Planning Memorandum
Arbitrage: at its simplest, the sale of a commodity on one market and its purchase on another, aiming to profit from price differences on the two markets
Back office: the departments of a financial institution responsible for trade processing and settlement, and other administration
Baker, James: member of the Internal Audit Department of BSL September 1993 to September 1994, during which time he conducted the internal audit of BFS in mid-1994.
Baker, Ron: Director, BB&Co, April 1992-December 1993, running Debt Financial Products group. Head of Financial Products Group, January 1994-1995. Responsible for Japanese/Singapore proprietary business from January 1994, and for agency business from January 1995. 
BAM: Baring Asset Management Limited 
Barnett, Geoffrey: Director BB&Co 1979-1995. Chief Operating Officer BB&Co and then BIB, September 1992-February 1995.
Bax, James: Managing Director of BSS, August 1987-October 1994. Managing Director of BFS, June 1988-February 1995. Director, BSL, 1989-1995. Regional Managing Director, Asia Pacific, for BSL and then BIB, early 1994-February 1995.
BB&Co: Baring Brothers & Co. Limited, which carried on Barings’ banking business
BFS: Baring Futures (Singapore) Pte Limited
BIB: Baring Investment Bank, an operational, not a legal, entity formed in 1994 by integrating the operations of BB&Co and BSL
BNP: Banque Nationale de Paris – relevantly, its Tokyo branch which was a direct customer of BFS
BoBS:  The report on the collapse of Barings by the Board of Banking Supervision
Bowser, Gordon: Derivatives Controller, BSL, March 1992-November 1993. Manager of costs and budget issues, FPG, November 1993-August 1994. Risk Manager North Asia in Hong Kong, August 1994-February 1995. 
Broadhurst, Geoffrey: Financial Controller, BB&Co 1987-February 1992. Finance Director, BSL February 1992-March 1993. Group Finance Director, BSL March 1993-August 1994. Group Finance Director, BIB August 1994-February 1995.
BSINGCOLL and BSSHSECOLL: the accounts in First Futures to which the Dollar Funding was credited (the former being used for the purported client funding and the latter for the purported house funding)
BSJ: Baring Securities (Japan) Limited
BSL: Baring Securities Limited
BSLL: Baring Securities (London) Limited (used from November 1993 for booking house derivatives trading)
BSS: Baring Securities (Singapore) Pte Limited
C&LL: Coopers & Lybrand (London)
C&LS: Coopers & Lybrand (Singapore)
CDDA: Company Directors’ Disqualification Act 
Chang, Eric: BFS floor trader. Appointed floor manager in 1993
CMP: SIMEX’s Combined Margins and Positions report
Compliance approach: obtaining assurance in an audit by testing the internal controls which should detect or prevent errors in the financial statements
Consolidation schedules: non-statutory financial statements prepared for Barings’ subsidiaries and approved by their auditors, from which the group consolidated financial statements were prepared
CONTAC: the futures and options settlement computer system used by BFS
Cross trade: a trade on an exchange between two accounts maintained by the same dealer
D&T: Deloitte & Touche (Singapore)
Derivative: an instrument that changes in value in accordance with price movements of another instrument or index. Includes futures and options
Dollar Funding: funding in US dollars provided to BFS by BSL and BSLL in 1994 at Leeson’s request which was unreconciled to trades or customers
Equity balance: the net worth in an account maintained by a broker, reflecting all monies deposited, realised and unrealised profits and losses and commission
Error account: an account maintained by a broker to deal with trades executed in error
Euroyen: yen-denominated instruments traded outside the control of the Japanese monetary authorities
Farmer, Odette: BSL Settlements Controller until September 1992. Then appointed BSL internal auditor.
F&O: futures and options
First Futures: the settlements and accounting computer system used by BSL
Front office: the department of a financial institution responsible for executing trades on exchanges
Front-running: trading ahead of a customer order so as to benefit from the market movement which the customer’s order will cause
FTA: Futures Trading Act of Singapore
Futures contract: an agreement to buy or sell a standard quantity of a specific financial instrument at a predetermined future date and an agreed price
Gamby, Tony: Head of Settlements, BB&Co, not responsible for BSL, until January 1994, when he became Settlements Director, BIB, and director of BB&Co. He then had the Heads of Futures and Options Settlements, Equities Settlements and Derivatives Settlements reporting to him. 
Granger, Brenda: Manager London Futures and Options Settlements, BSL, July 1992-4. Manager Futures and Options Settlements, BIB, January 1994-1995.
GTR: BIB’s Group Treasury and Risk department
Gueler, Fernando: Arbitrage trader in warrants in BSJ, early 1990-1991. Index arbitrage trader, 1991-1995. Head of derivatives traders, BSJ, April 1993. Head of FPG in Tokyo, 1 January 1995. 
Hawes, Tony: Deputy Head of Treasury, BB&Co, 1987-1993. Seconded to BSL in October 1992 to work on solo consolidation. Treasurer, BSL, reporting to Mr Broadhurst, May 1993-August 1994. Group Treasurer, BIB, August 1994-February 1995, reporting to Mr Hopkins.
Hopkins, Ian: Finance Director, BB&Co 1987-1990. Joint, then sole, Head of Treasury and Trading, BB&Co, 1990-August 1994 and Deputy Head of the Banking Group. Head of Group Treasury and Risk, BIB, August 1994-February 1995.
House trading: (also known as proprietary trading) traders employed by a financial institution trading on behalf of the institution itself, rather than its customers
Initial margin: margin (see below) which SIMEX required the buyer or seller of a futures contact, or the seller of an option, to deposit with his broker as security against possible losses on the position
JGBs: Japanese Government Bonds or the futures derivatives of them
Jones, Simon: Finance Director of BSS, February 1990-February 1995. Director, BFS, May 1990-February 1995. Director of Operations, South Asia Region, BSL and then BIB, early 1994-February 1995.
K2/P4 line: entries in the balance sheet which was produced as part of solo consolidation (see below), which reflected the discovery that BSL had more fiduciary assets (cash deposited with exchanges and at the bank) than it had received from customers. The size of the entries increased in line with the Dollar Funding
Killian, Mike: General Manager, BSJ F&O Sales Department, September 1988. Director BSL May 1992-January 1993. Director, BFS, December 1992-1995. Head of Pacific Rim agency group, June 1993. Head of Global Equity F&O Sales, BIB, 1994-5. Based in San Francisco from 1 April 1994. 
Leeson, Nick: joined BB&Co in July 1989 to work in Futures and Options Settlements. Member of the BSL Business Development Group, May 1991. Manager BFS, March 1992. General Manager BFS, June 1993-February 1995. 
London Gross Report: an electronic feed from BFS to BSL which was effectively a daily activity statement for all accounts in the names of BSL and BSLL
Long: the holder of a long futures or options position has bought the instrument concerned (cf. “short”)
Maclean, George: Director BB&Co 1982-1995. Senior banking director BB&Co from late 1980s onward. Head of Bank Group, BIB, 1994-5.
Maintenance margin: margin (see below) which SIMEX required a broker or dealer to deposit with SIMEX as security against possible losses on a futures contact or a short option 
Margin: the amount payable by a customer to his broker, and by the broker to an exchange such as SIMEX, in relation to open futures positions and short option positions. It secures the exchange and the broker against their exposures if the positions make losses. 
Margin feed: an electronic feed containing BFS’ calculation of the initial and maintenance margin required from each of BSL’s customers (and from BSLL) in respect of the customer’s open positions at the close of the previous day
Mark-to-market: the valuation of open positions by reference to the current market prices
MAS: Monetary Authority of Singapore
Nikkei 225: a basket of 225 stocks traded on the Tokyo Stock Exchange. The basis for the major Japanese equities derivative contract
Norris, Peter: Chief Operating Officer, BSL, September 1992-March 1993. Chief Executive Officer, BSL, March 1993-November 1994. Chief Executive Officer, BIB, November 1994-February 1995.
Open position: a net position created by a trade to buy or sell a derivatives contract, which has not been matched (“closed”) by an offsetting transaction or satisfied by delivery
Option: an instrument giving the purchaser the right, but not the obligation, to buy (a “call option”) or sell (a “put option”) an underlying financial futures contract at a predetermined “strike price” on or before a specified future date. In return, the purchaser pays a premium to the seller (or writer) of the option. 
Proprietary trading: see house trading
Sacranie, Sajeed: internal auditor in BB&Co, May 1989. Internal auditor, BSL, December 1992. Responsible for risk management in BSL, June 1993. Personal assistant to Mr Norris, October 1994. Secretary of the BSL Risk Committee.
SAG: (Singapore) Statement of Auditing Guidelines
SAP: (Singapore) Statement of Auditing Practice
Settlement: the process of entering a trade onto the broker’s books and effecting any payments involved
Settlement variation: the amount payable to an exchange such as SIMEX on a daily basis in respect of realised and unrealised losses on futures positions
SFA: the UK Securities and Futures Authority
SFO: the UK Serious Fraud Office
Short: the holder of a short futures or options position has sold the instrument concerned (cf. “long”)
SIR:  Singapore Inspectors Report into the collapse of BFS
SIMEX: the Singapore International Monetary Exchange
SLK: Spear Leeds & Kellogg
Solo consolidation: the process whereby BB&Co and BSL were treated as a single unit for regulatory purposes 
SPAN: Standard Portfolio Analysis of Risk. A computerised system used by SIMEX and some other exchanges to calculate margin
SPG: Structured Products Group (later renamed Equity Financial Products)
Straddle: an option position combining a put and a call option on the same underlying instrument and with the same strike price. Profitable for the seller of the option only if the market remains stable
Substantive testing: obtaining assurance in an audit by direct checking of balances and of the transactions and documents underlying them 
Switching: the form of trading apparently carried on by Leeson at BFS. At least some of Barings management understood it to comprise price anomaly arbitrage (transacting equal and opposite trades on SIMEX and Osaka, so as to capture momentary price differences between the two exchanges), liquidity arbitrage (taking a tick or more from a client in return for effectively executing his trade on Osaka instead of SIMEX) and directional trading.
Thomas, Val: Head of Compliance Department for BSL London Office, 1992.  In charge of global compliance, 1993  
Tick: the basic amount of the movement up or down in the price of a futures contract. For the Nikkei 225, a tick was worth ¥2,500 on SIMEX and ¥10,000 on Osaka.
Trade feed: an electronic feed from BFS to BSL containing information as to all trades conducted for BSL and BSLL
Walz, Mary: Director, BB&Co, July 1992, under Mr Baker in the Debt Financial Products Group. She headed the Structured Products Group, which included equity products, within FPG, January 1994-1995, reporting to Mr Baker 
Yong, Rachel: Financial Manager at BSS and BFS, January 1993-February 1995, reporting to Mr Jones.

Tony Hawes
Treasurer BSG 5.93 (BSL)
BIB Group Treasurer 8.94

Walz
Head Equity Financial Products from 12.93, BB&Co

Baker
Head of FPG from 12.93 (BB&Co, BIB)

Baylis, etc
BSL 

Settlements

From 12.93

Gueler
Equity derivatives trader, BSJ

Granger
Manager BSL Settlements 92, F&O Settlements 94

Treasury

Till 3.93

Agency
From end 94 

After 8.94

till 8.94

Hopkins
Head of Treasury and Trading, BB&Co, till 8.94

After 3.93

Till 3.93

Peter Baring
Chairman Baring plc

Until 8.94

From 8.94

Till 94

After 94

Operations

Jones
FD BFS, COO BSS, Dir of Ops S.Asia Region 94

Till 11.93

After 11.93

Bax
Singapore Head (BSL),
MD of Asia Pacific Region early 94

Norris
COO, then CEO BSL, BIB

Bowser
BSL Derivatives Controller 92-3

Gamby
Head Settlements BB&Co, BIB

Hopkins
Director GTR 8.94

Broadhurst
FD BSL, BIB

Maclean
Head of Banking BB&Co, BIB

Tuckey
Chairman, BB&Co, BIB

Leeson

House 

Agency
Till end 94 

Barnett
COO, BB&Co, BIB

Fraser
Deputy Chairman, Asia (BSL), Head EBT Europe 94

From 93/4?

Killian
Head Global Equity F&O Sales, BSL, BIB (BSJ)

Until early 1994

SCHEDULE D: Reporting lines chart

SCHEDULE F 
THE PROCEDURE FOLLOWED BY D&T IN CONDUCTING THEIR AUDITS
1992 audit
1.	D&T’s work in 1992 fell into four stages:
i)	introductory planning
ii)	systems review
iii)	substantive audit
iv)	regulatory work
Introductory planning
2.	The planning stage is described in the judgment, in the section of the Factual Outline dealing with the 1992 audit. In brief, D&T sent to C&LL a completed Audit Planning Memorandum (“APM”) and audit time and costs budgets on 17 August 1992. They also reported that they had not identified any significant issues needing to be brought to C&LL’s attention at that stage. The APM was prepared by Jenny Rodgerson of D&T, apparently after a visit to BSS and BFS.
3.	D&T adopted a substantive approach to the audit rather than a compliance approach. A substantive approach involves obtaining assurance as to the correctness of the financial statements by direct checking of balances and of the transactions and documents underlying them. If adopting a compliance approach, an auditor obtains assurance by testing the internal controls which should detect or prevent errors in the financial statements.
Systems review
Auditing guidelines
4.	SAG 7, “Study and Evaluation of the Accounting System and Related Internal Controls in Connection with an Audit”, states at paragraph 15:
“The auditor should review the accounting system and related internal controls to gain an understanding of the flow of transactions and the specific control procedures to be able to make a preliminary evaluation and identification of those internal controls on which it might be effective and efficient to rely in conducting his audit.”
5.	After stating at paragraph 16 that such review consists mainly of enquiries of personnel and referring to documentation such as procedures manuals, SAG 7 continues in paragraphs 20 and 21:
“…The purpose of the preliminary evaluation is to identify the particular controls on which the auditor still intends to rely and to test through compliance procedures.
“The auditor may decide not to rely on particular internal controls because, for example,
(a) 	they are defective…, or
(b)	the audit effort required to test compliance with those internal controls would exceed the reduction in effort that could be achieved by reliance on them.”
6.	Paragraph 27 deals with internal control in small businesses, and states:
“…in small businesses … segregation of functions may be missing or severely limited. Inadequate segregation of duties may, in some cases, be offset by owner/manager supervisory controls… In circumstances where segregation of functions is limited and evidence of supervisory controls is lacking, the evidence necessary to support the auditor’s opinion on the financial information may have to be obtained largely through the performance of substantive procedures.”
7.	This is reinforced by the flow chart in the Appendix to SAG 7 which shows that, after “Understanding of the accounting system and related internal controls per [paragraph] 15” in the planning stage, the auditor should decide whether he has a “probable intention to rely on internal controls”. If the answer is no, he omits all the stages of study and evaluation of controls and moves directly to modification and performance of substantive procedures.
D&T’s systems review
8.	D&T began their field work for the BFS audit on 2 October 1992. Their working papers document clearly their review of BFS’ systems and procedures. The B4 series of work papers, dated 3 to 5 October 1992, contain notes on BFS’ customers, the procedure for executing orders, the checks Leeson carried out on completeness of orders, settlement variation, the reports generated by CONTAC, the reports received from SIMEX, commission rates, the interaction between CONTAC and the SUN system, and the procedures followed for allocation, give-in and give-up trades. On 6 and 9 October 1992, the B5 and B6 sheets document D&T carrying out tests on these controls: sampling of the checks carried out by BFS to ensure that orders were complete, trade details and settlement variation calculation matched the SIMEX listings, settlement variation was paid, commission income was computed correctly and bank reconciliations reviewed, and that the controls on give-up trades were working properly. 
9.	The impression given by these notes is that D&T obtained a reasonable understanding of the BFS systems, in accordance with paragraph 15 of SAG 7, and also that procedures were carried out by the BFS staff and reviewed by Leeson.
Substantive audit
10.	D&T decided, either in the light of their systems review or earlier, to carry out a substantive audit. 
Balance sheet
11.	D&T’s work on the balance sheet started on 7 October 1992, when they received the trial balance and first draft balance sheet prepared by BFS. From these D&T produced a working balance sheet. They proceeded to verify all the figures from the draft balance sheet and to adjust them where necessary, to produce the figures that went into the final audited balance sheet. The working balance sheet has cross-references to the work papers concerned, from which it is possible to trace through exactly the process followed.
12.	Thus the first item on the balance sheet was “Shareholders’ equity”, made up of: 
i)	“share capital”. This was checked to the company’s annual returns and to the directors’ resolution issuing further shares during the year, and 
ii)	“retained earnings” and the “SIMEX reserve”. These figures were taken from the profit and loss account (see below), the working version of which shows the calculation of the profit before tax and its division into half in accordance with SIMEX rules: half into retained earnings and half to the SIMEX reserve.
13.	The second item was “Long term liabilities”. These consisted of subordinated loans from BSS and Barings Securities International Holdings (“BSIH”), its parent company. The loans were checked to BSS’ books and confirmed by fax by BSIH, and copies of the loan agreements were placed on file.
14.	The third item was “Current liabilities”. This consisted of:
i)	“amount payable to clearing house [SIMEX]” (on BFS’ house account). D&T confirmed this figure to CONTAC and to the SIMEX CMP report. D&T obtained from BFS the explanation for the difference between the figures from the two sources, which was that CONTAC took settlement variation into account a day before SIMEX, and they checked this reconciling item to the SIMEX report,
ii)	liabilities “due to related companies”. D&T took the confirmations which BFS had sent to, and received back from, BSL and BSJ (or apparently had done so in the case of the confirmation of the 88888 account). These were for four BSL accounts (the segregated, non-segregated, house and 88888 accounts), and the accounts for BSJ Tokyo and BSJ Osaka. The totals of the figures for “account balance” and “variation margin” on each account confirmation, all added together, equalled exactly the total figure for “client payable” in BFS’ trial balance. That was itself checked against the client general ledger in CONTAC. In fact it is now known that the confirmation for the balance on the 888888 account was either forged by Mr Leeson or concocted at his instigation by a friend in BSL, but it is not alleged that D&T should have realised it to be a forgery,
iii)	“other creditors and accruals”. D&T confirmed the trial balance figure for general expenses with CONTAC, and checked for unpaid invoices and late items, the largest of which (the amount due to SIMEX for clearing fees) was checked against SIMEX statements. A balance in relation to BFS’ SIMEX seat was checked against the lease agreement. The figure for interest payable to BSJ Osaka was checked against the CONTAC schedule. In turn the figures for sample dates on that schedule were checked to BSJ’s statements and the mathematical calculation confirmed,
iv)	“provision for taxation”. This was computed by D&T’s tax department.
15.	The fourth item was “Fixed assets”. D&T selected a sample of assets acquired during the year and checked them against invoices, purchase authorisations and payments, and verified the depreciation calculation.
16.	The fifth item was “Other assets – SIMEX membership”. D&T obtained confirmation from SIMEX of the number of seats held and their value, and external confirmation of BFS’ purchase of one share.
17.	The final item was “Current assets”, consisting of:
i)	“amount receivable from clearing house [SIMEX]” (on BFS’ customer account). This was the aggregate of settlement variation owed to SIMEX on the customer account and deposits with SIMEX on that account. D&T confirmed both figures against CONTAC and against the SIMEX CMP report. As with the amount payable to SIMEX, D&T obtained from BFS the explanation for the difference between the figures for settlement variation from the two sources, which was that CONTAC took settlement variation into account a day before SIMEX, and they checked this reconciling item to the SIMEX report,
ii)	“fixed deposit”. This figure was verified by reference to fixed deposit slips received from the banks concerned, and the figures adjusted for accrued interest, which D&T computed,
iii)	“cash and bank balance”. This consisted of: 
a)	cash in BFS’ own bank account with HSBC. D&T confirmed the figure shown in the cashbook both with CONTAC and against the bank statement, and 
b)	amounts held at Citibank, in the house account and the customer account. For each of these two accounts, D&T checked the cashbook figure against CONTAC, and checked BFS’ daily reconciliation of the amount shown in the cashbook with the bank statement. 
For the house account, there were two reconciling items: the timing difference for booking settlement variation, which I have described above and which was checked to the SIMEX report; and brokerage fees for a client which had been received in the bank account but not yet posted in the cash book. 
For the customer account, there were also two reconciling items: again, the timing difference for booking settlement variation, which was checked to the SIMEX report; and an amount described on the reconciliation as “Funds due from BSL-Seg. A/c” of ¥670m. D&T noted on their work sheet the explanation for this latter item given by BFS: 
“Barings Futures took into their books the receipt of funds based on customer advice that they will transfer fund value 30/9/92. However cash was not received as at 30/9/92. Sighted Citibank fax advising the receipt of $670m [this should have read ¥670m] value 1/10/92”.
iv)	“other debtors and prepayments”. The figure in the trial balance was made up of a number of items. The verification of four of them, the Citibank house and customer accounts and the amounts owed to and from SIMEX, has already been described, under “amount payable to SIMEX”, “amount receivable from SIMEX” and “cash and bank balance”. This is because the items concerned were split up in the final balance sheet and included under more useful labels. The remaining items of any size were:
a)	interest receivable: the CONTAC calculation was checked. The amounts of principal and the interest rate applied were checked against SIMEX and Citibank statements on sample dates,
b)	minor amounts to be reimbursed by a customer, Cresvale, were checked to the supporting statement of account, and
c)	commission outstanding was checked against customer confirmations.
v)	“due from related company”. The item was agreed to BSS’ books.
18.	Thus D&T had checked all material items on the balance sheet against external confirmations.
Profit and loss account
19.	D&T carried out a similar process to draw up an audited profit and loss account. BFS supplied a management accounts profit and loss account on 7 October 1992. From this D&T produced a working profit and loss account, and then verified and adjusted the figures in it to come up with a final version.
20.	Income consisted of the following items:
i)	“commission income”. D&T confirmed the commission paid by and outstanding from customers against customer confirmations. To be deducted from this were brokerage fees and clearing fees to SIMEX. They verified these against brokers’ and SIMEX invoices and payments made,
ii)	interest income, which was checked against bank and SIMEX statements, and
iii)	a commission rebate, which was verified with Baring Securities (Osaka).
21.	Expenses consisted of a number of small items. D&T selected a sample of items and verified them against invoices and payment authorisations.
General audit procedures
22.	D&T also carried out a number of general audit procedures:
i)	general audit programme: this involved D&T checking for pending litigation, related party transactions, etc,
ii)	subsequent events review: this was conducted with Mr Jones on 9 October 1992,
iii)	review of minutes of meetings of directors, shareholders, etc: these were reviewed and in most cases copied, and
iv)	review of correspondence with SIMEX and MAS: again, this was reviewed and copied.
Regulatory work
23.	This included:
i)	completing various forms required by the Futures Trading Regulations and agreeing the balances in them to the audited trial balance,
ii)	review of SIMEX and MAS correspondence, and
iii)	working through a number of standard checklists designed to check that BFS was complying with SIMEX rules.
24.	D&T worked through and documented all of these checklists. An example, which proved to be of some significance in the case, was the “Model Audit Programme for Customer Orders”, which checked for compliance with SIMEX’s requirements for customer orders. 
25.	Some of the work on this Programme was covered in the initial walkthrough at the start of the fieldwork, but more detailed tests were carried out on and after 17 October 1992. Thus a sample of trades was tested to ensure that all order tickets were sequentially numbered, by checking to the SIMEX report, broker report and customer report. Likewise a test on the accuracy of BFS’ data processing system involved selecting a sample of trades and testing their records on the system for clerical accuracy, pricing, completeness, validity of margin calls, calculation of gains and losses, commission, etc. 
26.	The work papers show D&T testing six trades. One of them, as is described in the judgment, was a trade on the 88888 account. D&T enquired as to the reason for no commission being charged, and noted the answer:
“The a/c 88888 represent trade errors done by Baring Futures, thus no commission is charged. NB The errors done by Baring Futures is fully absorbed by Baring Securities London.”
1993 audit
27.	D&T’s audit of BFS for the 15 months ending 31 December 1993 followed a similar pattern. There are a few points of distinction from the 1992 audit:
i)	D&T carried out interim field work in November 1993. At this time D&T updated their systems notes, carried out checks on commission procedures, and did much of the regulatory work. Thus for example D&T observed the process of faxing customer statements to BSJ and downloading London trades to BSL, and checked with BFS that monthly statements were sent to all customers;
ii)	also in November 1993, D&T reviewed the outcome of the SIMEX audit and prepared a list of audit points arising out of it which they then followed up;
iii)	the field work for the statutory audit began in early January 1994. On 11 January BFS provided a trial balance to D&T. D&T carried out the same process as they carried out in 1992, of substantive verification and adjustment of figures, and production of a final audited balance sheet and profit and loss account. 
Of particular relevance to the audit case is the confirmation of amounts due to related companies. The work papers show that D&T confirmed the total in the trial balance to that shown in the trading general ledger account in CONTAC and to written confirmations from all the related companies to which amounts were owed. The 88888 account appeared on the relevant work paper, even though it had a nil balance in 1993, as it had had a balance in the prior year. Since all the 1993 balances which made up the total in CONTAC were confirmed exactly to customer confirmations, D&T thereby confirmed that the balances on all other accounts, including the 88888 account, were nil – as indeed they were.

Schedule G