The National Bank of the Kyrgyz Republic intends to introduce additional requirements for international companies that conduct external audits of banks and other financial and credit organizations. The draft resolution of the Board of the National Bank of the Kyrgyz Republic has been submitted for public discussion.
The document was developed in order to provide banks with an expanded choice of audit organizations, including those that are members of the international network of audit firms.
The initiator intends to adjust the requirements for selecting an audit organization to conduct an external audit of banks.
Recall, the current version of the relevant regulation states that the audit organization selected to audit a bank or banking group must have experience in auditing commercial banks, financial and credit organizations in accordance with international audit standards and international financial reporting standards, as well as in accordance with the standards approved by the Accounting and Auditing Organization for Islamic Financial Institutions.
In the opinion of the Board of the National Bank of the Kyrgyz Republic, such requirements limit the possibility of participation in the audit of new audit organizations that are part of the international network of audit organizations.
The draft resolution of the Board of the National Bank of the Kyrgyz Republic proposes to establish additional requirements for international audit organizations.
«Valuing financial instruments, including those subject to fair value measurement, can be a complex task. This is especially true when banks have complex and illiquid financial instruments. Banks often value such products using complex internal models, historical and forecast data based on assumptions. Obtaining sufficient objective audit evidence to confirm the correctness of the assessments made is often difficult.
In addition, international financial reporting standards, in particular financial instruments, are complex and subject to many interpretations. These factors can increase the risk of material misstatements in the financial reporting.
In addition, creation of reserves for possible asset losses is usually significant for the financial statements of a bank, and the likelihood of misstatements is high. This is due to the fact that the bank’s management seeks to increase the level of profit and capital by understating reserves.
«Creation of reserves for possible losses of assets requires an expert opinion to determine the economic benefit of financial instruments and the amount of the reserve required to cover potential losses in the event of impairment,» the background statement says.
Additional criteria for selecting audit organizations will improve the quality of audits conducted in banks and are also aimed at ensuring transparency in the activities of commercial banks, the bank believes.
