Regulatory Policy - The Approval of an Auditor for a Regulated Institution

Summary

This CIMA regulatory policy sets out the criteria the Cayman Islands Monetary Authority uses to approve and continue approving auditors for regulated institutions (entities whose regulatory laws require CIMA-approved auditors, such as mutual funds). Approval is based on five criteria: sufficient expertise and resources, continuing professional education, quality assurance reviews, independence, and professional indemnity insurance. Approved auditors are expected to keep meeting these standards on an ongoing basis, not just at the point of approval.

• Expertise and resources: Audit partners should hold an internationally recognised accounting qualification and generally have at least five years' relevant auditing experience at management level.
• Quality assurance: Firms should maintain robust quality control processes including concurring partner review and internal quality reviews.
• Independence: Staff must sign independence declarations annually and follow IFAC Code of Ethics guidance on independence; firms cannot audit financial statements they (or a closely related entity) prepared.
• Professional indemnity insurance: Firms should carry professional indemnity insurance of at least CI$500,000 per claim and CI$1,000,000 in aggregate (or rely on a member firm's extension of cover).

Failure to comply with the policy may result in an auditor being removed from CIMA's list of approved auditors. The policy applies broadly to all provisions of the regulatory laws requiring CIMA-approved audits, including the Local Audit Sign-Off Policy for mutual funds.

Key obligations

• Auditors seeking approval must demonstrate sufficient expertise and resources relevant to the industry sector of the regulated institution being audited.
• Partners signing off audit engagements must hold an internationally recognised accounting qualification and, as a general rule, have a minimum of five years' auditing experience of financial institutions at management level in the relevant industry.
• All professional accounting personnel must undertake relevant continuing professional education and maintain good standing with their international accounting body.
• Firms must maintain a competent quality assurance process, including pre-established guidelines for concurring partner review and regular internal quality control reviews.
• All staff must sign off annually on internal firm independence declarations, and firms must have clear procedures for ensuring independence on new engagements, following IFAC Code of Ethics Section 8 guidance.
• Firms providing other services (e.g., internal audit) to a licensee must keep the nature and extent of those services under review to preserve auditor objectivity.
• Audit firms must not audit financial statements of a licensee where the firm or a closely related entity prepared those financial statements.
• Firms must remain vigilant to other circumstances that could compromise independence or objectivity and take steps to address them.
• Audit firms must maintain professional indemnity insurance of at least CI$500,000 per claim and CI$1,000,000 in aggregate, or hold an equivalent extension of cover from a member firm.
• Approved auditors must continue to meet all elements of this policy on an ongoing basis, not only at initial approval.

Applies to

auditors of regulated institutions, regulated institutions/licensees, mutual funds