The Monetary Board (MB), in its meeting held on 27 February 2014 approved the guiding principles on the “Bangko Sentral ng Pilipinas’ (BSP) Expectations for an Effective External Audit Function”. This is part of the continuing initiatives of the BSP, along with the other member-agencies of the Financial Sector Forum (FSF) to promote quality control standards in external audit.
The principles cover the responsibilities of the board of directors and management of financial institutions; roles of the external auditors; and the relationship between the BSP and external auditors. The set-out responsibilities of the board and management are consistent with the principles embodied under Circular No. 749 dated 27 February 2012, as amended, or the “Guidelines in Strengthening Corporate Governance in BSP Supervised Financial Institutions” particularly those relating to controls, independent oversight and checks and balances systems.
On the other hand, the roles of external auditors highlight the responsibilities of the external auditing profession in an audit engagement and the key factors affecting the quality of audit. The principles also articulate the BSP’s expectations with respect to the issue of loan provisioning wherein external auditors are expected to look into the soundness of the assumptions and methodologies used for provisioning under both the prescribed financial reporting and BSP prudential reporting frameworks. In addition, the principles highlight that the external auditors are expected to charge reasonable audit fees taking into account the complexity of the activities and structure of the financial institution, among others. In this regard, external auditors are expected to ensure that the audit fees will be set at an amount that will not in any way compromise the quality of the audit.
Finally, cognizant of the complementary concerns shared by the BSP and the external auditor, the principles include how the BSP and the external auditor can mutually benefit from each other’s work. In this view, the principles provide that financial institutions shall allow external auditors “read-only” access to the BSP’s Report of Examination (ROE). This aims to facilitate identification of possible misstatements and high risk areas relevant to the preparation of financial statements as well as expose external auditors to matters that are of interest to supervisors.
The FSF is a voluntary inter-agency body comprised of the BSP, Securities and Exchange Commission, Insurance Commission and the Philippine Deposit Insurance Corporation. As agreed upon in the FSF, the principles set-out on the expectations from an effective external audit function will also be adopted by the other member-agencies in their respective supervisory jurisdictions.