Bangladesh Bank Issues Rules on External Audit of Banks to Strengthen Financial Governance and Transparency

Bangladesh Bank Strengthens Financial Governance with New External Audit Rules

The Bangladesh Bank has taken a significant step towards enhancing financial governance, transparency, and accountability in the country’s banking sector by issuing new rules on external audits of banks.

The ‘Bank Company External Audit Rules- 2024′ aim to ensure the accuracy and transparency of financial information reported by banks. The rules set stringent criteria for selecting external auditors, define the scope of audit activities, and mandate specific reporting requirements.

Under the new rules, banks are required to select their annual external auditors from firms approved by the Bangladesh Bank through their annual general meetings. They must also obtain a no-objection certificate from the central bank for the audit firm to ensure independence and professionalism in the auditing process.

To facilitate timely and thorough audits, banks are obligated 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 also stipulate that the same external auditor cannot serve the same bank for more than three consecutive years. External auditors have reporting obligations that encompass various critical aspects of financial integrity and regulatory compliance, including submitting interim, management, special, final, and other necessary reports.

The audit firm will assess areas such as loan classification accuracy, asset management practices, regulatory compliance, and data submitted to the Credit Information Bureau in the interim report. In the management report, auditors will evaluate banks’ adherence to rules in handling defaulted loans, provisioning practices, profit calculations, and governance issues.

Auditors will also review the resolution of any irregularities identified in previous audits and notify the Bangladesh Bank of significant irregularities or breaches of banking laws or regulations through a special report for swift regulatory intervention.

The final audit report will evaluate whether banks’ financial statements comply with regulatory standards, scrutinizing capital adequacy, reserves management, liquidity ratios, asset-liability maturity mismatches, and adherence to rules in loan approvals, disbursements, and financial reporting.

Additionally, auditors will conduct risk-based audits on at least 80% of a bank’s risk-weighted assets, including top branches, to ensure robust risk management practices. They will also verify compliance with import-export regulations and review import-related documents to ensure goods have been imported as claimed.

Overall, the new external audit rules aim to strengthen financial governance and accountability in Bangladesh’s banking sector, ensuring the stability and integrity of the industry.