The Bangko Sentral ng Pilipinas (BSP) is proposing to amend the rules on the selection of external auditors for all its supervised financial institutions (BSFIs) to update and make it consistent with the other changes in BSFIs’ corporate governance framework.
In a draft circular currently being circulated among banks and non-banks, the BSP said it is amending the framework for the selection of external auditors “pursuant to Section 58 of the Republic Act No. 8791, otherwise known as the General Banking Law of 2000, as amended” to further improve the way BSFIs audit their financial statements.
“The BSP considers the external auditing profession as a partner in promoting the safety and soundness of BSFIs,” the central bank said in the draft circular.
It further noted that external auditors – which are audit firms, partners, or an individual/sole practitioner in public practice -- through the conduct of audits and opinions rendered on Audited Financial Statements (AFS) “contribute to enhancing corporate governance and empowering the public and investors to make informed financial decisions.”
The draft circular has a feedback deadline of Sept. 27, 2024.
Based on the proposed rules, the BSP said BSFIs when it comes to the appointment and selection of external auditors will only engage the services of an external auditor included in the BSP’s “List of Selected External Auditors for BSFIs”.
“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,” said the BSP.
The BSP said 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.
External auditors will be classified into three categories, two of which are: Group A which are the universal and commercial banks, foreign banks and branches or subsidiaries of foreign banks including offshore banking units, digital banks and trust departments and trust corporations; and Group B which are thrift banks, non-bank financial institutions with quasi-banking license, virtual asset providers and credit card Issuers/acquirers.
The last category Group C includes rural and cooperative banks, non-stock savings and loans associations, pawnshops, and remittance and transfer companies/money changers/foreign exchange dealers.
In determining the categories, the BSP said this will be based on their track record and the results of the BSP's assessment of their continuing eligibility to be included in the List of Selected External Auditors for BSFIs.
Meanwhile, external auditors applying for inclusion in the BSP list will have to qualify and submit documentary requirements. Inclusion in the list is valid for five years but it could be less than that, depending on the BSP.
The BSP said it will “periodically evaluate the external auditor's performance by assessing the quality of the BSFI's audited financial statements and its compliance with the requirements”. This assessment will determine if an external auditor is qualified to remain in the list.
The draft circular also revised the audit engagement and reportorial requirements, supervisory enforcement action, and the guidelines on the suspension/delisting of external editors in the BSP list.