New Rules for External Audit of Bank-Companies Issued by Bangladesh Bank

The Bangladesh Bank has introduced new rules for the external audit of bank-companies, aiming to enhance the standards of financial reporting in the banking sector. According to the “Rules for External Audit of Bank-Companies, 2024” issued by the central bank, institutions will now have to audit about 80% of banks’ total risk-weighted assets in their annual audits.

This marks the first time that specific guidelines have been formulated for external auditors in Bangladesh, with managing directors of banks instructed to comply with the rules starting from the next audit year, 2025. The circular also states that the same external auditor cannot be appointed to a bank for more than three consecutive years, and individuals related to the bank in any capacity cannot serve as external auditors.

The new guidelines require external auditors to scrutinize banks for any signs of “window dressing” to inflate capital, provisioning, and profits. They will also focus on issues such as loan classification irregularities, foreign exchange irregularities, and verification of expired loan information.

Former Bangladesh Bank governor Salehuddin Ahmed praised the new rules, stating that they will help improve the credibility of audit reports and enable audit firms to highlight irregularities more effectively. The guidelines also mandate that external auditors must audit at least ten branches of a bank with progressively higher levels of loans and deposits.

Furthermore, the external auditor firms are required to submit interim reports exclusively to the central bank, with a final audit report covering various irregularities related to loan classification, foreign exchange transactions, and regulatory reporting. Special reports must be submitted immediately if any serious irregularities or criminal offenses are detected.

The Bangladesh Bank has also reduced the number of qualified audit firms from 47 to 31, with a list of eligible firms published every two years. The central bank may give instructions for the appointment of multiple external auditors in any bank if necessary, and can disqualify auditors for negligence or failure to fulfill their duties.

Overall, these new rules aim to strengthen the oversight and transparency of the banking sector in Bangladesh, ensuring that financial institutions operate with integrity and accountability.