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Approved by Resolution No. 32/7 of the National Bank of the Kyrgyz Republic Board as of November 20, 2003 |
BASIC REQUIREMENTS
to the Audit Committee
(As amended by Regulations of the National Bank KR Board No. 8/2 as of February 15, 2012, No. 28/6 as of July 4, 2012, No. 43/1 as of November 16, 2012, No. 53/10 as of September 16, 2015, No. 2017-P-12/25-7-(RLA) as of
June 15, 2017)
1. General Provisions
1.1. The present Basic Requirements establish minimum requirements for the organization of market risk management binding upon commercial banks, as well as the banks operating in accordance with the Principles of Islamic Banking and Finance, “Financial Company of Credit Unions” OJSC and the State Development Bank of the Kyrgyz Republic (hereinafter referred to as the banks).
(As amended by Resolution No. 2017-P-12/25-7-(RLA) of the National Bank of the Kyrgyz Republic Board as of June 15, 2017)
1.2. The purpose of this document is to establish requirements binding upon the Bank’s Audit Committee (hereinafter referred to as the Committee).
1.3. The purpose of the Committee is to increase the efficiency of the Board of Directors of the Bank and optimize the decisions it makes. In addition, the Committee is called upon to strengthen control over the internal control system, external and internal audit, as well as to promote the reliability of financial reporting and the efficiency of the bank’s activities, to improve interaction between the members of the Board of Directors, the management of the bank, the internal audit service, the external audit and the National Bank of the Kyrgyz Republic (hereinafter referred to as the National Bank). This, in its turn, will improve the quality of information provided to external users.
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
1.4. The committee should be established in the bank, regardless of the activities carried out.
1.5. (Excluded in accordance with Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
2. Regulation on the Committee
2.1. The activities of the Committee shall be governed by the Regulation on the Committee, which is approved by the Board of Directors of the bank.
2.2. This document should specify:
- the purpose and tasks of the Committee;
- organization of the Committee - composition, frequency and time of meetings;
- rights and duties of the Committee;
- the procedure for interaction with the Board of Directors, the management of the Bank, internal and external auditors, for banks conducting transactions in accordance with the Principles of Islamic Banking and Finance, also with the Corporate Governance Committee, the Department responsible for monitoring compliance with the Sharia’h standards (or authorized internal auditor checking compliance with the Sharia’h standards), the Sharia’h Council;
- the order of the progress report before the Board of Directors.
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
3. Organization of the Committee
3.1. The committee shall consist of at least three members of the Board of Directors appointed by the general meeting of the bank’s shareholders. Two of three members of the Board of Directors should be independent members. At the same time, independence means that the following parties cannot be a member of the Committee:
- members of the Management Board and employees of the Bank;
- business partners of the bank’s shareholder;
- members of the Board of Directors and shareholders of another bank.
At the same time, the Chairman of the Audit Committee should mandatorily be one of the independent members of the Board of Directors of the bank who does not chair the Risk Committee.
(As amended by Resolution No. 2017-P-12/25-7-(RLA) of the National Bank of the Kyrgyz Republic Board as of June 15, 2017)
3.2. It is necessary that all members of the Committee can read and understand the basic financial statements, including the bank’s balance sheet, statement of financial results and cash flow statement. At least one member of the Committee should have professional experience in the areas of accounting, financial management or audit. In banks carrying out transactions in accordance with the Principles of Islamic Banking and Finance, at least one member of the Committee should know the standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
3.3. The Committee shall establish procedures to ensure the confidentiality and anonymity of the receipt of any information, recommendations and wishes relating to financial reporting and internal control.
3.4. Meetings of the Committee shall be held regularly, at least once a quarter. The Committee shall be convened by the Board of Directors or by two members of the Committee.
Each member of the Committee participating in the decision should:
- be aware of the essence of the issue under consideration and independent in judging (able to act independently, regardless of someone's influence on the results of its conclusions, implications and in the circumstances that exclude any extraneous influence on the expression of opinion);
- be aware of the influence of decisions made by it on the activities of the bank;
- assess the possibility of risks and the consequences of decisions made by it.
The opinion of a Committee member who has comments and suggestions on the issue under consideration and who does not agree with the decision taken should be expressed in the vote and reflected in the minutes. All members of the Committee who attended the meeting and the secretary of the Committee should sign the minutes. Members of the Committee who did not attend the meeting should be familiar with the minutes and the decisions taken against the signature.
(As amended by Resolution No. 8/2 of the National Bank of the Kyrgyz Republic Board as of February 15, 2012)
3.5. To ensure the effectiveness of the bank’s activities, the Chairman or a member of the management of the bank, the head of the internal audit service and the external auditor may attend the meetings of the Committee without the right to vote. The circle of participants in the meeting should be limited to those who are familiar with the issues on the agenda or are responsible for them.
3.6. The term of office of the members of the Committee should be set for one year.
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
4. Functions of the Committee
4.1. The Committee shall carry out its activities within the framework of the legislation of the Kyrgyz Republic with the account of the requirements of regulatory acts and other documents of the National Bank performing the following main functions:
- establishment of accounting procedures and supervision of their implementation;
- drawing up recommendations to the general meeting of shareholders on the appointment of external auditors and, if necessary, initiating special audits of the bank, attracting experts to assist the Committee at the bank’s expense;
- supervision of the implementation of legislation, including regulatory acts of the National Bank, and submission of a report on this issue to the Board of Directors of the bank.
4.2. In its activities, the Committee may not be limited to performing the functions provided for in Clause 4.1 in order to ensure the operation of a proper internal control system in the bank.
5. Rights of the Committee
5.1. To fulfill its duties, the Committee has the right:
- to recommend the candidacy of the internal auditor of the bank to the Board of Directors;
- to receive any required information and reporting related to the bank’s activities from the bank’s employees, the management of the bank and the external auditor;
- to require any investigation;
- to receive, if necessary, reports on the results of the bank’s activities and recommendations of the internal auditor without a visa of the management of the bank, as well as management’s plans to perform these recommendations;
- to request the work plan, conclusions and recommendations on the results of the audit from the external auditor.
6. Obligations of the Committee
6.1. The Committee shall:
- analyze the functioning of the internal control system;
- assess the activities of the management of the bank to implement the recommendations of internal and external auditors on the internal control system;
- assess the internal control system that ensures reliability and accuracy of the financial information provided to the management of the bank, the National Bank and external users;
- clarify significant risks in the bank’s activities and plans for their minimization from the management of the bank, internal and external auditors;
- analyze the essential issues of accounting and reporting, as well as understand their impact on the financial statements;
- consider together any facts of fraud, illegal actions, deficiencies in the internal control system and other similar issues with internal and external auditors;
- assess the annual financial statements, determine its completeness and appropriate reflection of information known to the members of the Committee;
- analyze the activities and organizational structure of the internal audit service;
- analyze and assess the implementation of the quality program developed by the head of the internal audit service;
- recommend the candidacy of the external auditor and the amount of his/her remuneration to the Board of Directors based on the analysis of information on audit companies for subsequent submission to the general meeting of shareholders;
- consider the adequacy of the external audit program to the size of the bank and the complexity of the operations conducted;
- assess the independence of the external auditor, analyze other services provided by the audit company;
- assess the experience of the external auditor, the adequacy of the resources of the audit company and the correctness of determination of the risk area by the audit;
- review the annual report of the bank and the letter to the management prepared by the external auditor for submission to the Board of Directors;
- analyze the system for monitoring compliance with the legislation of the Kyrgyz Republic, the requirements of the National Bank, the charter, regulations and policies established by the Board of Directors;
- analyze the results of inspections conducted by the relevant authorities;
- assess the effectiveness of the management of the bank;
- in the banks operating in accordance with the Principles of Islamic Banking and Finance - analyze and assess the activities of the bank to comply with the Sharia’h standards, also based on the reports of the department responsible for monitoring compliance with the Sharia’h standards (or an authorized internal auditor checking compliance with the Sharia’h standards).
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
6.2. In the banks operating in accordance with the Principles of Islamic Banking and Finance, one member of the Audit Committee should be part of the Corporate Governance Committee, the minimum requirements for whom are defined in the Regulation “On Corporate Governance in the Banks of the Kyrgyz Republic that Conduct Operations Under the Principles of Islamic Banking and Finance” approved by Resolution No. 67/9 of the National Bank of the Kyrgyz Republic Board as of November 30, 2011.
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
7. Procedure for Coordination of the Committee with the Board of Directors, Management of the Bank, Internal and External Auditors
7.1. The procedure for coordination of the Committee with the Board of Directors, management of the bank, internal and external auditors for the banks operating in accordance with the Principles of Islamic Banking and Finance, also with the Corporate Governance Committee, the Department responsible for monitoring compliance with the Sharia’h standards (or authorized internal auditor checking compliance with the Sharia’h standards), the Sharia’h Council should be determined by each bank independently and in accordance with regulatory legal acts of the National Bank.
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
7.2. The following points should be highlighted in this order:
- the Committee’s accountability to the Board of Directors and the need of providing recommendations by the Committee, on the basis of which the Board of Directors issues orders binding on the bank;
- coordination of the Committee with the management of the bank, the internal and external auditors for the banks operating in accordance with the Principles of Islamic Banking and Finance, also with the Corporate Governance Committee, the Department responsible for monitoring compliance with the Sharia’h standards (or an authorized internal auditor checking compliance with the Sharia’h standards), the Sharia’h Council should be determined based on the rights and duties of the Committee.
(As amended by Resolution No. 28/6 of the National Bank of the Kyrgyz Republic Board as of July 4, 2012)
8. Progress Report
8.1. The Committee should report on the work done to the Board of Directors on a regular basis.
8.2. The frequency and detail of the Committee’s progress reporting for each bank may be different. However, the reports should contain a general brief description of the activities of the Committee for the reporting period, the content of the main recommendations and information on their performance or non-performance.
9. Final Provisions
9.1. The present document shall establish only the fundamental requirements that the Committee should adhere to in carrying out its activities.
9.2. The relevant internal regulatory document of the bank may also reflect other provisions necessary for the regulation of the activities of the Committee.