BSP eyes changes to external auditor selection rules
THE BANGKO SENTRAL ng Pilipinas (BSP) is looking to issue a revised framework for the BSP-supervised financial institutions’ (BSFIs) selection of external auditors.
“The BSP considers the external auditing profession as a partner in promoting the safety and soundness of BSFIs,” it said in a draft circular posted on its website.
“In this light, the BSP is issuing the framework for the selection of external auditors of BSFIs pursuant to Section 58 of the Republic Act No. 8791, otherwise known as the ‘General Banking Law of 2000,’ as amended.”
The central bank defined an external auditor as an audit firm, partner or individual/sole practitioner in public practice. External auditors conduct audits and opinions rendered on audited financial statements, it added.
These auditors “contribute to enhancing corporate governance and empowering the public and investors to make informed financial decisions.”
The proposed circular revises the classification system for external auditors to include digital banks.
BSFIs must engage the services of an external auditor that is included in the list of selected external auditors, the BSP said.
“In this respect, a BSFI shall only appoint an external auditor belonging to the same category or from categories higher than the category of the BSFI concerned as provided in this section,” it added.
External auditors will be classified into three categories, namely: Group A (universal and commercial banks, foreign banks and branches or subsidiaries of foreign banks, digital banks and trust departments and trust corporations); Group B (thrift banks, non-bank financial institutions with quasi-banking license, virtual asset providers and credit card issuers/acquirers); and Group C (rural and cooperative banks, non-stock savings and loans associations, pawn shops and remittance and transfer companies, money changers, and foreign exchange dealers).
The classification will be based on the external auditors’ track record and the BSP’s assessment of their eligibility. External auditors must also adhere to the qualification and documentary requirements set by the BSP.
Inclusion in the list of selected external auditors for BSFIs will also be valid for a period of five years or possibly shorter depending on the BSP.
“The Monetary Board may require the BSFI to appoint an external auditor from higher categories as part of the BSP’s supervisory action on the BSFI; or at the expense of the BSFI, require the external auditor to undertake a specific review of a particular aspect of the BSFI’s operations/transactions,” it added.
The central bank may also “deploy its range of supervisory enforcement actions to promote adherence to the requirements outlined in this section and bring about timely corrective actions.”
“The BSP may downgrade the external auditor’s category, shorten the period of validity of inclusion, suspend, or delist the external auditor from the List of Selected External Auditors for BSFIs based on the result of its assessment of the quality of the AFS and compliance with the provisions of this section,” it added.
Under the draft rules, sections of the Manual of Regulations for Banks and Manual of Regulations for Non-Bank Financial Institutions will also be amended.
These include the sections regarding the guidelines on the suspension or delisting of external auditors in the list of selected external auditors.
The draft rules also introduce a section on the disqualification and watch-listing of directors and officers.
In terms of audit engagement and reportorial requirements, the external auditor’s assessment of the continuing compliance with provisions on long association, including rotation of partner, shall also be made available to the BSP upon request. — Luisa Maria Jacinta C. Jocson