The Bangladesh Bank on Tuesday issued rules on external audit of banks with the aim of strengthening financial governance, transparency and accountability in the country鈥檚 banking sector.
The rules named 鈥楤ank Company External Audit Rules- 2024鈥� set stringent criteria for selecting external auditors, define the scope of audit activities and mandate specific reporting requirements to ensure the accuracy and transparency of financial information reported by banks.
Banks are required to select their annual external auditors from firms approved by the Bangladesh Bank through their annual general meetings, according to the rules.
Moreover, they must obtain a no-objection certificate from the central bank for the audit firm, ensuring independence and professionalism in the auditing process.
To facilitate timely and thorough audits, banks are obliged to provide external auditors with all necessary information and documents promptly.
Delays in providing required information that result in late commencement or completion of audit activities will hold bank authorities accountable, the rules said.
The same external auditor cannot serve the same bank for more than three consecutive years.
According to the new rules, the external auditor鈥檚 reporting obligations encompass various aspects critical to financial integrity and regulatory compliance. These include submitting interim, management, special, final and other necessary reports.
The interim report, which must be prepared for nine months of the audit year, must assesses critical areas such as loan classification accuracy, asset management practices, regulatory compliance, and the correctness of data submitted to the Credit Information Bureau, according to the rules.
In the management report, auditors evaluate banks鈥� adherence to rules in handling defaulted loans, provisioning practices, profit calculations and governance issues.
The audit firm will also review the resolution of any irregularities identified in previous internal and statutory audits, highlighting areas where improvements are needed to strengthen governance and risk management frameworks.
In cases of significant irregularities or breaches of banking laws or regulations, auditors are required to immediately notify the Bangladesh Bank through a special report. This proactive reporting ensures swift regulatory intervention to mitigate risks and safeguard the stability of the banking sector, the rules said.
The final audit report is pivotal, as it evaluates whether banks鈥� financial statements comply with the Bangladesh Bank鈥檚 regulatory standards.
It scrutinises capital adequacy, reserves management, liquidity ratios, asset-liability maturity mismatches, and adherence to rules in loan approvals, disbursements, and financial reporting.
Additionally, auditors assess non-banking assets, expense management practices, and the proper accounting of assets acquired by banks.
Furthermore, auditors conduct risk-based audits on at least 80 per cent of a bank鈥檚 risk-weighted assets, including top branches, to ensure robust risk management practices across the organisation.
They have the authority to collect and verify essential financial documents and may seek information from relevant individuals to substantiate their audit findings, it said.
The audit firm will verify if there are any violations of rules and regulations related to import-export activities, including under-invoicing and over-invoicing.
It will also check for irregularities in financing through discounting, negotiation, or purchase of export bills.
Additionally, the auditors will examine compliance with rules governing financing of imports in local and foreign currency.
It will review import-related documents to ensure goods have imported to the country as claimed.
The audit firm will verify if repatriated export proceeds were deposited into customers鈥� accounts instead of adjusting related loan accounts.
