Statement I.1 & I.2 To the members of UNION BANK OF JAMAICA LIMITED We have audited the financial statements set out on Statements II to VI. These financial statements are the responsibility of the directors and management. The directors and management are required to select suitable accounting policies and then apply them consistently, make judgements and estimates that are reasonable and prudent, follow applicable accounting standards, and prepare the financial statements on a going concern basis unless it is inappropriate to presume that The Bank will continue in business. The directors and management are responsible for keeping proper accounting records, for safeguarding the assets of The Bank, and for the prevention and detection of fraud and other irregularities. Our responsibility is to express an opinion on these financial statements based on our audit. Except as disclosed in paragraph four below, we conducted our audit in accordance with standards on auditing generally accepted in Jamaica. Those standards require that we plan and perform the audit to obtain all the information and explanations which we considered necessary to provide us with reasonable assurance that the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and significant estimates made by directors and management, as well as evaluating the overall financial statements presentation. We believe our audit provides a reasonable basis for our opinion. The financial statements have been prepared on a going concern basis which contemplate the realization of assets and repayment of liabilities in the ordinary course of business. However, The Bank has incurred significant losses prior to, in the year 1999, and subsequent to year end. In 1999 in an effort to create a more viable entity other financial institutions were merged into The Bank, and The Bank recapitalised by the parent company, Finsac Limited (Finsac) , with a view to returning The Bank to profitability and its ultimate sale. As described at Note 6, for the year ended December 31, 1999 approximately $3.6 billion or 78% of The Bank's income from loans and investments consisted of interest on Finsac bonds. This interest was paid principally by issue of further bonds, and at December 31, 1999 approximately $2.5 billion has been accrued which is included in other receivables, and this amount too may be paid for in Finsac bonds subsequent to year end. At December 31, 1999 Finsac bonds, including accrued interest amounted to $22.1 billion and represented 68% of the total assets. The liquidity of The Bank, its ability to continue its operations and achieve profitability are largely dependent on the collection of interest and/or principal, on Finsac bonds which the Government of Jamaica (GOJ), through the Ministry of Finance and Planning, has undertaken to pay in cash to the extent required by The Bank from time to time. GOJ has also undertaken to provide any additional capital required, within the Bank of Jamaica's capital adequacy guidelines, until The Bank achieves profitability or is sold. During the year arising from the merger described in Note 2, several accounting systems were in operation at various locations for the merged entities. This created difficulties in the maintenance of proper accounting records as documentary evidence in support of transactions were filed at various locations. While every effort has been made to ensure the account balances reported on are not materially misstated, based on the facts outlined in Note 33 there is no assurance that certain assets and liabilities are fairly stated. Consequently, a contingency provision of approximately $160 million is available to mitigate any losses, not known at this time, that might arise on the resolution of the matter. The financial statements for the year ended December 31, 1998 were reported on by another firm of Chartered Accountants whose report dated May 14, 1999 was unqualified. We have relied on their report in respect of the opening balances as at January 1, 1999. In our opinion, subject to such adjustments, if any, that might be required on the ultimate resolution of the uncertainties in paragraph three above, and except for the effects of such adjustments, if any, that might arise as a result of the matters described in paragraph four above, proper accounting records have been kept, and proper branch returns obtained, and the financial statements, which are in agreement therewith, present fairly in all material respects the state of The Bank's affairs as at December 31, 1999 and the net loss and changes in equity and cash flows for the year then ended and have been prepared in accordance with accounting standards generally accepted in Jamaica and comply with the provisions of the Companies Act applicable to Banking companies. Deloitte & Touche Chartered Accountants Kingston, Jamaica, June 29, 2000
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