The Bermuda Monetary Authority's Relationship with Auditors and Reporting Accountants of Banks and Deposit Companies (December 2012)

Summary

This is Bermuda Monetary Authority guidance from December 2012 setting out the framework for the Authority's relationship with the auditors and reporting accountants of banks and deposit companies licensed under the Banks and Deposit Companies Act 1999. It explains the statutory reporting duties auditors and reporting accountants owe directly to the Authority, the confidentiality safe harbour for such disclosures, and the practical arrangements for trilateral meetings, section 39 commissioned reports, accounting record standards and auditor review of interim profits.

• Auditor appointment and reporting: Licensed institutions must appoint an approved auditor annually; auditors must give written notice to the Authority on resignation before term expiry, on not seeking re-election, on modifying or qualifying their audit opinion, or on becoming aware of matters of material significance specified in section 60 regulations.
• Section 39 reports: When the Authority requires it, an institution must commission a report from its auditor or another suitably skilled reporting accountant on specified matters (systems and controls, or assurance on prudential returns), following the Authority's instruction letter and timetable, and confirm in writing that this has been done.
• Trilateral meetings: The Authority, the institution and its auditor/reporting accountant meet at least annually to discuss audit findings, financial statement issues, internal controls, internal audit/compliance functions and risk management arrangements.
• Accounting records: Institutions must maintain accounting and record-keeping systems capable of producing reliable, timely information and audited annual (and interim) financial statements using consistent, realistic and prudent valuation rules, across all business including off-balance-sheet and agency activity.
• Interim profit inclusion in capital: Only audited profits normally qualify for inclusion in an institution's capital base for capital adequacy and large exposures purposes; current year profits may be included in tier 1 capital only if reviewed by the institution's external auditors in the format set out in Annex E.
• Confidentiality safe harbour: Disclosures made in good faith by auditors or reporting accountants to the Authority under section 39 or related duties do not breach any duty of confidentiality owed elsewhere.

The paper's annexes set out the detailed statutory reporting triggers (Annex A), agreed timing and content requirements for section 39 commissioned reports (Annex B and D), the Authority's expectations for accounting records (Annex C), and the required form of an auditor's interim profits review report (Annex E).

Key obligations

• Licensed institutions must appoint an approved auditor annually to audit their financial statements and lay those statements before members in general meeting.
• Auditors must give the Authority written notice if they resign before the end of their term, do not seek re-election, intend to modify or qualify their audit report, or become aware of facts or matters of material significance specified in section 60 regulations.
• Reporting accountants appointed under section 39 must give the Authority written notice if they become aware of facts or matters of material significance.
• When required by the Authority under section 39, an institution must proceed forthwith to commission the specified report from its auditor or a reporting accountant and write to the Authority confirming this has been done.
• Reporting accountants must deliver section 39 reports to the institution's Board within three months of the end of the period examined or, if later, within three months of the commissioning letter date, unless otherwise agreed.
• The institution must submit the reporting accountant's report to the Authority, with any management comments, within one month of receiving it (or such longer agreed period).
• Institutions must participate in trilateral meetings with the Authority and their auditor/reporting accountant at least once a year.
• Institutions' boards and senior management must maintain accounting and record-keeping systems capable of producing reliable, timely information and audited financial statements using consistent, realistic and prudent valuation rules.
• Current year profits may only be included in tier 1 capital if reviewed by the institution's external auditors in the prescribed report format.

Applies to

banks, deposit companies, licensed institutions under the Banks and Deposit Companies Act 1999, approved auditors, reporting accountants

Deadlines

• within three months of the end of the period examined, or if later within three months of the date of the commissioning letter: Deadline for reporting accountants to provide their section 39 report to the institution's Board
• one month (or such longer period as may have been agreed): Period for the institution to submit the reporting accountant's report, with management comments, to the Authority
• at least once a year: Frequency of required trilateral meetings between the Authority, the institution and its auditor or reporting accountant