The Approval of an Auditor for a Regulated Institution (Regulatory Policy)

Summary

This is a CIMA regulatory policy (issued 2002, revised 2003) setting out the criteria the Cayman Islands Monetary Authority uses when approving auditors to audit regulated institutions, as required under the various regulatory laws. It applies to audit firms seeking or holding approval to audit CIMA-regulated entities, and by extension to the regulated institutions that must use CIMA-approved auditors.

The policy lists five assessment criteria for approving and continuing to approve an auditor: sufficient expertise and resources, continuing professional education, quality assurance reviews, independence, and professional indemnity insurance.

• Expertise: Partners are expected to hold an internationally recognised accounting qualification and generally at least five years' relevant auditing experience.
• Quality control: Firms must maintain quality control processes, including concurring partner review and internal quality reviews.
• Independence: Firms and staff must maintain independence, including a prohibition on auditing financial statements that the firm (or a closely related entity) itself prepared.
• Professional indemnity insurance: The policy specifies minimum professional indemnity insurance levels.

Failure to comply with the policy may result in an auditor being removed from CIMA's list of approved auditors. The policy applies wherever regulatory laws require annual audited accounts by a CIMA-approved auditor, including in connection with the Local Audit Sign-Off Policy for mutual funds.

Key obligations

• Approved auditors must continue to meet this policy on an ongoing basis after approval.
• Audit engagement partners (or others with sign-off authority) must hold an internationally recognised accounting qualification and generally at least five years' auditing experience of financial institutions in the relevant industry sector.
• Professional accounting personnel must undertake continuing professional education and maintain good standing with their international accounting body.
• Audit 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 ensuring independence on new engagements, following IFAC Code of Ethics Section 8 guidance.
• Audit firms may not audit financial statements of a licensee that the firm (or a closely related entity) itself prepared.
• Firms providing other services (e.g. internal audit) to a licensee must keep the nature/extent of such services under review to preserve auditor objectivity.
• Audit firms must maintain adequate professional indemnity insurance of at least CI$500,000 per claim and CI$1,000,000 in aggregate (or rely on an extension of a member firm's cover).
• Firms must remain vigilant for other circumstances that could compromise independence or objectivity and take appropriate corrective steps.

Applies to

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

Deadlines

• annually: All staff of an approved audit firm must sign off annually on internal firm independence declarations.
• annually: Accounts of regulated institutions must be audited annually by a CIMA-approved auditor under the applicable regulatory laws.