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BSP Enhances Rules on Financial Audit Reports

07.14.2006

The Bangko Sentral ng Pilipinas further enhanced its regulations on effective governance by rationalizing existing provisions of the Manual of Regulations for Banks on the submission of financial audit reports of external auditors as well as other informational requirements. Financial audit reports refer to the balance sheets, income statements, statements of changes in equity, statements of cash flows and notes to financial statements, including the opinion of the external auditor.

The new circular restated the deadline for the submission of the audit report from ninety (90) calendar days from start of such audit to one hundred twenty (120) calendar days after the close of the calendar year or the fiscal year adopted by the bank to afford more time to the external auditors to prepare the audit report and the required letter of comments on the institution’s internal control and risk management systems. This is intended to ease off the pressure in the deadline for submission of the audit report inasmuch as most financial audit of banks are initiated months before the year under audit ends. The circular also fixes responsibilities as well as clarifies the deadlines for submission of certifications, schedules, and all the other attachments.  
            
External auditors shall now be guided in the determination of the existence of what may be considered material weakness or breach in internal control that shall be reported to the BSP.  Material weakness is defined as a significant control deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be detected or prevented by the entity’s internal control.

In the case of foreign bank branches operating in the Philippines, it was clarified that the country head shall be responsible for the submission of the report of management action on the financial audit report and letter of comments.

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