Amendments to Regulations on Financial Audit of Banks and Non-Bank Financial Institutions

This accounting alert provides a summary of Bangko Sentral ng Pilipinas (BSP) Circulars No. 1074 and 1075, which amends certain regulations concerning the financial audit of BSP-supervised financial institutions (BSFIs). 

The BSP recognizes that external auditors play a vital role in contributing to the conduct of effective supervision and sustaining the confidence of the public in the financial system. In this light, the Monetary Board, in its Resolution No. 48 dated January 8, 2020, approved the amendments to regulations on the financial audit of BSFIs which aim to enhance the quality of information channeled to the supervisory process and ultimately promote fairness, transparency and accuracy in financial reporting.

Summary of Amendments

​Pertinent provisions of the Manual of Regulations for Banks (MORB), Manual of Regulations for Foreign Exchange Transactions (MORFXT), and Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) are amended to indicate new requirements and deadlines on the submission of reports and certifications. A brief summary of significant amendments are provided below:

For banks (BSP Circular No. 1074):

  • New requirement to external auditors on certification on compliance with (a) confidentiality clause pertinent to read-only access to the Report of Examination, and (b) disclosure requirements under Section 174 of the MORB, as amended by BSP Circular No. 1074, and other information that may be required;
  • New prescribed formats of the reconciliation statements between the audited financial statements and the prudential reports for banks (Annex B to BSP Circular No. 1074) or financial reporting package for trust institutions (Annex C);
  • Changes in the deadline of submission of letter of comments and reportable conditions to the BSP to align with the deadlines as previously set under BSP Circular No. 1040, Revised Framework on the Selection of External Auditors
  • New and amended disclosure requirements to the audited financial statements (Annex A), which are to be presented either (i) on specific notes to the financial statements, or (ii) in a separate note containing supplementary information as required by the BSP; and,
  • Removal of the requirement of a certification by the external auditor on the dates of commencement and termination of audit, date when the financial audit report and certification of no reportable conditions were submitted to the bank's board of directors, and independence confirmations by the members of the engagement team and their immediate family.

For foreign exchange transactions (BSP Circular No. 1074) -

  • Changes in the deadline of submission of audited financial statements of foreign currency deposit units (FCDUs) or expanded FCDUs (EFCDUs) from 90 calendar days to 120 calendar days after the close of the calendar year or fiscal year adopted by the bank.

For non-bank financial institutions (NBFIs), which include NBFIs performing quasi-banking functions, non-stock savings and loan associations (NSSLAs), pawnshops, trust corporations (TCs), and other NBFIs (BSP Circular No. 1075):

  • New requirement to external auditors on certification on compliance with (a) confidentiality clause pertinent to read-only access to the Report of Examination, and (b) disclosure requirements under corresponding subsections of the MORNBFI, as amended by BSP Circular No. 1075, and other information that may be required;
  • New prescribed formats of the reconciliation statements between the audited financial statements and the prudential reports for:
    • NBFIs performing quasi-banking functions (Annex Q-33-b);
    • NSSLAs (Annex S-15-a);
    • pawnshops (Annex P-18-a);
    • TCs (Annexes T-5-a and T-5-b); and,
    • other NBFIs except for remittance and transfer companies, money changes and foreign exchange dealers (Annexes N-19-a and N-19-b);
  • Changes in the deadline of submission of letter of comments and reportable conditions to the BSP to align with the deadlines as previously set under BSP Circular No. 1040, Revised Framework on the Selection of External Auditors

  • New and amended disclosure requirements to the audited financial statements of the following NBFIs, which are to be presented either (i) on specific notes to the financial statements, or (ii) in a separate note containing supplementary information as required by the BSP:

    • NBFIs performing quasi-banking functions (Annex Q-33-c);
    • NSSLAs (Annex S-15-b);
    • pawnshops (Annex P-18-b);
    • TCs (Annex T-5-c); and,
    • other NBFIs (Annex N-19-c); and,
  • Removal of requirement of a certification by the external auditor on the dates of commencement and termination of audit, date when the financial audit report and certification of no reportable conditions were submitted to the NBFI's board of directors, and independence confirmations by the members of the engagement team and their immediate family.

Effectivity Date

​These circulars shall take effect 15 calendar days following its publication either in the Official Gazette or in a newspaper of general circulation.

 

See attached BSP Circulars for the details of this publication.