Basel Committee Issues Revised Guidelines Concerning External Audits of Banks

by Goodwin

The Basel Committee on Banking Supervision (the “Basel Committee”) of the Bank for International Settlements issued a revised set of guidelines (the “Guidelines”) concerning the external audits of banks.  The Basel Committee said that the recent global financial crisis highlighted the need to improve the quality of banks’ external audits.  The Basel Committee further stated in the Guidelines that external auditors of banks can contribute to financial stability “when they deliver quality bank audits which foster market confidence in banks’ financial statements.”  A sound bank audit, continued the Basel Committee, provides valuable input to a bank’s regulatory supervisors.  The Guidelines replace two earlier sets of guidelines on these issues released by the Basel Committee in 2002 and in 2008, respectively.

The Guidelines are divided into two parts.  In Part 1, the Guidelines discuss the role and responsibilities of bank audit committees in the context of external audits and the interaction of bank supervisors with auditors and audit oversight authorities.  Part 1 of the Guidelines also provides a framework that supervisors can use to assess the effectiveness of an audit committee in overseeing a bank’s external audit.  Part I of the Guidelines sets forth nine key principles concerning the audit committee and bank supervisors’ roles and interactions related to banks’ external audits.”  The nine principles articulated by the Basel Committee are:

Principle 1

The audit committee should have a robust process for approving, or recommending for approval, the appointment, reappointment, removal and remuneration of the external auditor.

Principle 2

The audit committee should monitor and assess the independence of the external auditor.

Principle 3

The audit committee should monitor and assess the effectiveness of the external audit.

Principle 4

The audit committee should have effective communication with the external auditor to enable the audit committee to carry out its oversight responsibilities and to enhance the quality of the audit.

Principle 5

The audit committee should require the external auditor to report to it on all relevant matters to enable the audit committee to carry out its oversight responsibilities.

Principle 6

The supervisor and the external auditor should have an effective relationship that includes appropriate communication channels for the exchange of information relevant to carrying out their respective statutory responsibilities.

Principle 7

The supervisor should require the external auditor to report to it directly on matters arising from the audit that are likely to be of material significance to the functions of the supervisor.

Principle 8

There should be open, timely and regular communication between the banking supervisory authority, audit firms and the accounting profession as a whole on key risks and systemic issues as well as a regular exchange of views on appropriate accounting techniques and auditing issues.

Principle 9

There should be regular and effective dialogue between the banking supervisory authority and the relevant audit oversight body.

The Basel Committee noted that differences in national laws may impact the implementation of these Principles.

Part 2 of the Guidelines discusses the Basel Committee’s expectations and suggestions regarding improving the quality of banks’ external audits.  The suggestions cover key areas where the Basel Committee believes there is a relatively high risk of material misstatements in a bank’s financial statements.  The six expectations articulated by the Basel Committee are:

Expectation 1

The external auditor of a bank should have banking industry knowledge and competence sufficient to respond appropriately to the risks of material misstatement in the bank’s financial statements and to properly meet any additional regulatory requirements that may be part of the statutory audit.

Expectation 2

The external auditor of a bank should be objective and independent in both fact and appearance with respect to the bank.

Expectation 3

The external auditor should exercise professional skepticism when planning and performing the audit of a bank, having due regard to the specific challenges in auditing a bank.

Expectation 4

Audit firms undertaking bank audits should comply with the applicable standards on quality control.

Expectation 5

The external auditor of a bank should identify and assess the risks of a material misstatement in the bank’s financial statements, taking into consideration the complexities of the bank’s activities and the effectiveness of its internal control environment.

Expectation 6

The external auditor of a bank should respond appropriately to the significant risks of a material misstatement in the bank’s financial statements.

Last, the Guidelines provide an annex providing examples of an external auditor’s report to bank supervisors and guidelines on the timing and context of meetings between bank supervisors and external auditors.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Written by:


Goodwin on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.