Central bank revises framework for selection of external auditors

THE BANGKO SENTRAL ng Pilipinas (BSP) has approved the revised framework on the selection of external auditors for its supervised financial institutions (BSFIs).

“The Bangko Sentral considers the external auditing profession as partner in promoting the safety and soundness of BSFIs,” it said in a circular letter. “Through their audits and opinions rendered on Audited Financial Statements (AFS), external auditors contribute to enhancing corporate governance and empowering the public and investors to make informed financial decisions.”

BSFIs may only engage the services of those included in the list of selected external auditors, the BSP said.

“A BSFI shall only appoint an external auditor belonging to the same category or from categories higher than the category of the BSFI concerned,” it said. “The external auditor appointed by the BSFI shall likewise audit the BSFI’s trust department and its subsidiaries and affiliates engaged in allied activities.”

The external auditors will be classified into three categories, namely Groups A, B and C. They can only extend their services to BSFIs from the same category they belong to and those in lower groups.

“The external auditors’ classification shall be determined based on their track record and the results of the Bangko Sentral’s assessment of their continuing eligibility,” the BSP added.

Group A is made up of universal and commercial banks, foreign banks and branches or subsidiaries of foreign banks, trust departments and trust corporations, and digital banks.

Meanwhile, Group B consists of thrift banks, nonbanking financial institutions with quasi-banking licenses, virtual asset service providers and credit card issuers/acquirers.

Rural and cooperative banks, non-stock savings and loans associations, pawnshops, remittance and transfer companies, money changers, and foreign exchange dealers fall under Group C.

Inclusion in the list of selected external auditors for BSFIs is valid for five years or one year, as determined by the central bank.

The circular also details guidelines on audit engagement and reportorial requirements.

“The BSFI’s audit committee/board of directors/board of trustees shall ensure that the scope of external auditor work appropriately covers areas relevant to the BSFI’s operations and risk exposures,” it said.

These include the review of the adoption of the reporting framework and the assessment of the accuracy, adequacy and reliability of account records and financial reports including the review of accompanying reports to the audited financial statements submitted to the BSP.

“The Bangko Sentral, through the appropriate supervising departments, may conduct meetings with the audit committee of the BSFIs and or the external auditors as part of its supervisory activities on BSFI or annual assessment of the continuing qualification of the external auditors to be included in the list of selected external auditors,” it said.

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 issue directives or impose sanctions on BSFIs that appoint external auditors that are not on its list.

It can also downgrade an external auditor’s category or exclude it from the list. The grounds for removal from the list include failure to comply with provisions and refusal, for no valid reason, to submit requested documents concerning an ongoing investigation, among others.

“External auditors in good standing whose validity for inclusion has expired after the audit of 2023 financial statements will be allowed to engage in the audit of the 2024 financial statements. For this purpose. external auditors in good standing refers to external auditors who are not suspended or delisted as of the date of effectivity of this circular,” the BSP added. — Luisa Maria Jacinta C. Jocson