QUIZ – 2017: Insights Current Affairs Quiz, 21 February 2018

Solution: b.

Such a question will not be asked in CS(P). This is an issue relevant for mains/interview.

Alarmed by the manner in which Letters of Undertaking (LoU) were fraudulently issued to importers in connivance with certain PNB officials, the Enforcement Directorate suspects that the same modus operandi could have been adopted in other banks to raise funds illegally in the name of settling import bills.

LoU is a bank guarantee generated on behalf of importers for payments abroad. Under this arrangement, the issuing bank agrees to unconditionally repay the principal amount and interest thereupon. It remains valid for three months.

In the PNB case, the accused officials misused the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) system to verify the fraudulently issued LoUs, confirming to the overseas branches of several banks that they could extend foreign exchange credit to the beneficiaries.  The SWIFT system is mainly used for clearing international wire transfers.

The PNB now has also issued a note to all the banks cautioning them against the modus operandi adopted in the fraud. The bank found that the beneficiary companies were maintaining only current accounts with the branch and had not been sanctioned any credit limit.

Refer image, ‘Decoding the PNB fraud’ for a better understanding of the scam: (The Hindu, Feb 16^th) http://www.thehindu.com/news/national/pnb-nirav-modi-and-a-fraud-that-went-undetected-for-7-years/article22765349.ece;

Solution: a.

Question asked in the context of the PNB scam.

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.

http://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp;

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Solution: d.

The role of CAG in the auditing of public corporations is limited. Broadly speaking, his relationship with the public corporations falls into the following three categories:

1. Some corporations are audited totally and directly by the CAG, for example, Damodar Valley Corporation, Oil and Natural Gas Commission, Air India, Indian Airlines Corporation, and others.
2. Some other corporations are audited by private professional auditors who are appointed by the Central Government in consultation with the CAG. If necessary,  the  CAG  can  conduct supplementary audit. The examples are, Central Warehousing Corporation, Industrial Finance Corporation, and others.

• Some other corporations are totally subjected to private audit. In other words, their audit is done exclusively by private professional auditors and the CAG does not come into the picture at all. They submit their annual reports and accounts directly to the  Parliament. Examples of such corporations are Life Insurance Corporation of India, Reserve Bank of India, State Bank of India, Food Corporation of India, and others.

Improvisation/In the news (http://www.thehindu.com/news/national/how-did-system-allow-pnb-fraud-asks-cvc/article22778169.ece): “Banks are audited at three levels — apart from an internal audit, there is an external auditor and a statutory audit undertaken by the RBI. The CVC is keen to understand how none of these audits picked up a red flag on the letters of undertaking that seem to have been issued bypassing the system.”

Solution: c.

The ICAI has been established by an Act of Parliament, viz. The Chartered Accountants Act, 1949 for regulating the profession of Chartered Accountancy in the country. It functions under the administrative control of the Ministry of Corporate Affairs, GoI.

The QRB is set up under the Chartered Accountants Act, 1949 and is mandated to conduct independent audit quality reviews. QRB is not a member of the International Forum of Independent Audit Regulators (IFIAR). For QRB to become a member, IFIAR requires QRB to demonstrate its independence from the profession. Providing QRB the necessary independence can help in ensuring that the errant auditors in this instance (PNB scam) are punished so that the deterrence created by such punishment helps to improve audit quality.

Additional Information: The SEBI Committee on Corporate Governance chaired by Uday Kotak had recommended setting up of a National Financial Reporting Authority (NFRA) which would function as an independent regulatory body, similar to the USA’s Public Company Accounting Oversights Board (PCAOB). The ICAI on the other hand is a self-regulatory body. The SEBI committee had also recommended that till the creation of the NFRA, the QRB should be strengthened to meet the independence criteria laid down by IFIAR and become its member at the earliest.

http://www.qrbca.in/functions-of-the-board/;

https://www.icai.org/new_post.html?post_id=165&c_id=195;

Source: https://blogs.timesofindia.indiatimes.com/et-commentary/how-to-tackle-bank-fraud-pnb-scam-should-pave-the-way-to-reforming-the-audit-profession-in-india/

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Solution: b.

• Zagros Mountains (https://www.britannica.com/place/Zagros-Mountains) is a mountain range in southwestern Iran, extending northwest-southeast from the border areas of eastern Turkey and northern Iraq to the Strait of Hormuz.
• Carpathian Mountains (https://www.britannica.com/place/Carpathian-Mountains), a geologically young European mountain chain forming the eastward continuation of the Alps.
• The Andes (Andes Mountains – https://www.britannica.com/place/Andes-Mountains) consist of a vast series of extremely high plateaus surmounted by even higher peaks that form an unbroken rampart over a distance of some 5,500 miles (8,900 kilometres)—from the southern tip of South America to the continent’s northernmost coast on the Caribbean.

Improvisation: http://www.thehindu.com/news/international/search-for-missing-iranian-plane-hit-by-bad-weather/article22800201.ece;

Solution: a.

General map question. There have been plenty of issues frequently appearing in the news related to the happenings in West Asia. UPSC will not ask such a direct question, but knowing such small details (with regard to both – the map of India and the World) will help you answer map-based questions in preliminaries.

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