Bangladesh Bank issues rules on external audit of banks to strengthen financial governance and transparency

The Bangladesh Bank has taken a significant step towards enhancing financial governance, transparency, and accountability in the country’s banking sector with the issuance of new rules on external audit of banks. The ‘Bank Company External Audit Rules- 2024′ aim to ensure the accuracy and transparency of financial information reported by banks by setting stringent criteria for selecting external auditors, defining the scope of audit activities, and mandating 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. Delays in providing necessary information for audits will hold bank authorities accountable, and the same external auditor cannot serve the same bank for more than three consecutive years.

The external auditor’s reporting obligations cover various critical aspects such as loan classification accuracy, asset management practices, regulatory compliance, and governance issues. They are required to submit interim, management, special, final, and other necessary reports to evaluate banks’ adherence to rules and identify areas for improvement in governance and risk management frameworks.

In cases of significant irregularities or breaches of banking laws or regulations, auditors must immediately notify the Bangladesh Bank through a special report for swift regulatory intervention. The final audit report evaluates whether banks’ financial statements comply with regulatory standards, including capital adequacy, reserves management, liquidity ratios, and adherence to loan approval and disbursement rules.

Auditors also conduct risk-based audits on at least 80% of a bank’s risk-weighted assets to ensure robust risk management practices. They verify compliance with import-export rules, including under-invoicing and over-invoicing, financing through export bills, and import-related document verification.

Overall, the new rules on external audit of banks are expected to strengthen financial governance, transparency, and accountability in Bangladesh’s banking sector, ultimately safeguarding the stability and integrity of the industry.