| BSD
Circular No. 1 of 2006 |
January 14, 2006
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The
Presidents / Chief Executives
All
Banks / DFIs
Dear
Sirs/Madam,
GUIDELINES
ON INTERNAL CONTROLS
Please
refer to the Guidelines on Internal Controls issued vide
BSD Circular No.07 dated May 27, 2004.
2)
In terms of Para 7 (c) of the above referred Guidelines,
banks/DFIs are required to get the Statement on Internal
Controls attested from their external auditors. The compliance
of this requirement regarding attestation of statement by
the External Auditors was, however, deferred for one year
till December 31, 2005 vide BSD Circular Letter No. 03 dated
January 26, 2005. Now, on the suggestion of Pakistan Banks’
Association (PBA) and the Institute of Chartered Accountants
of Pakistan (ICAP), it has been decided to allow further
time of one year to banks/DFIs to enable them to fully comply
with the State Bank’s Guidelines on Internal Controls.
Accordingly, the compliance of the requirement regarding
attestation of the statement by the External Auditors as
per Para 7 (c) of the above referred Circular is being deferred
for one year and will now be effective from the year ending
on December 31, 2006.
3)
The banks/DFIs are advised to achieve full compliance of
the Guidelines on Internal Controls within the extended
period. The following guidelines will also be observed in
this regard:
i) Management of all Banks/DFIs should provide their external
auditors with adequate access to information to determine
whether the respective institution has a satisfactory
system of internal controls. Banks/DFIs may share the
self-assessment/progress report on Compliance with the
Guidelines on Internal Controls with their external auditors.
However, sharing of information in this manner does not
preclude external auditors from the responsibility of
performing relevant procedures to give them reasonable
assurance about the authenticity of the management and
Board of Directors’ assertions on the internal controls
in Annual Report.
ii) While developing Internal Controls for their institutions,
the banks/DFIs may seek guidance from any well-recognized
framework/ international best practices to strengthen
their internal controls. The system of internal controls
so developed by the banks/DFIs should be properly documented
and made available to the external auditors and the SBP’s
inspectors for their review.
iii)
The attestation by the external auditors, as required
vide Para 7 (c) of the Guidelines, will be based on adequacy
of internal controls relating to financial reporting.
iv)
Management of Banks/DFIs while evaluating the effectiveness
of internal controls in its statement in the Annual Report
shall also comment on its related future plans and timing
for rectification of the deficiencies, if any, in Internal
Controls.
4)
Other
instructions on the subject shall, however, remain unchanged
Please acknowledge receipt.
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Yours faithfully,
(JAMEEL AHMAD)
Director
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