Audit of stock exchange final


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Audit of stock exchange final

  1. 1. A stock market, or (equity market), is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The stocks are listed and traded on stock exchanges which are entities a corporation or mutual organization specialized in the business of bringing buyers and sellers of stocks and securities together. Function and purpose The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central bank tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial syste functions. Financial stability is the raison d'être of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. Tanzania Perspective The Capital Markets and Securities Authority (CMSA) is a Government Agency established to promote and regulate securities business in the country. It was established under Capital Markets and Securities Act, 1994. The legal framework for the regulation of the securities industry is the Capital Markets and Securities Act, 1994 [Act No: 5 of 1994 as amended by Act No: 4 of 1997]. The Act is supplemented by various regulations that are promulgated by the Minister for Finance. CMSA's Mission is to design and implement purposeful measures which will enable the creation and development of sustainable capital markets that are efficient, transparent, orderly, fair and equitable to all. The Dar es Salaam Stock Exchange (DSE) was incorporated in September 1996 as a private company limited by guarantee and not having a share capital under the Companies Ordinance (Cap. 212). The DSE is therefore a non-profit making body created to facilitate the Government implementation of the economic reforms and in future to encourage the wider share ownership of privatized and all the companies in Tanzania and facilitate raising of medium and log-term capital. The formation of the DSE followed the enactment of the Capital Markets and Securities Act, 1994 and the establishment of the Capital Markets and Securities Authority (CMSA), the industry regulatory body charged with the mandate of promoting conditions for the development of capital markets in Tanzania and regulating the industry. The governing organ of the DSE is the Council of the Exchange, which consists of 10 members representing various interest groups in the society. Trading activities at the DSE commenced on 15th April 1998 after two years of background preparatory work under the stewardship of the Government through the Capital Markets and Securities Authority. The opening of the Trading Floor coincided with the listing of TOL Limited (formerly Tanzania Oxygen Limited), as the first company on the new Exchange. Other stock market in the world include New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotation System (NASDAQ), American Stock Exchange (Amex), London Stock Exchange (LSE), Deutche Borse and Euronext ( Paris Bourse). The purpose of a stock exchange is to
  2. 2. facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. Audit procedures The audit of stock exchange is typically compliance with the Capital Markets and Securities Act No. 4 of 1997. The following areas should be checked as a part of audit work • Maintenance of Books of accounts Auditors may examine if the stock market or a broker has been maintaining the required books of accounts as per CMSA Act. Any non maintenance of books of accounts by the Stock market/broker may be specifically commented by the auditor. • List of trading terminals: Auditors may cross check list of all trading terminals granted by the member. It may also be examined by the auditors whether such trading terminals have been given by the member only at its registered office, branch office and the registered sub broker’s office. Grant of any unauthorized trading terminal by the broker to its clients etc. may be reported by auditors in their report. • Vouch the turn over details of the stock exchange for both the retails clients and institutional clients. This may entails areas of derivatives and financial instruments. • Examine the statement of changes in shareholding pattern • Examine the statement of networth and overall exposure to the market • Examine the role of compliance officer and internal auditor • Vouch the proper segregation of clients funds and own funds of the exchange • Vouch the brokers margin accounts • Payment of statutory taxes by brokers • Inspect the exchange/broker exposure limits • Receivables/payment and deliveries to clients • Inspect the mode of payment to the brokers and stock markets • Examine any indications of related party transactions