SBP extends compliance on internal controls guidelines

The State Bank of Pakistan (SBP) has decided to allow further extension of one year to the banks and DFIs to enable them to fully comply with State Bank''s Guidelines on Internal Controls.
These guidelines, on internal controls, were issued under BSD Circular No 7 on May 27, 2004. These guidelines direct the banks and DFIs to get Statement on Internal Controls attested from their external auditors.
Compliance of this requirement regarding attestation of statement by the External Auditors was, however, deferred for one year, till December 31, 2005, under BSD Circular Letter No 3 dated January 26, 2005.
The extension has been granted on the suggestion of Pakistan Banks'' Association (PBA) and the Institute of Chartered Accountants of Pakistan (ICAP). Accordingly, the compliance of the requirement regarding the attestation of the statement by the External Auditors as per Para 7 (c) of the above referred Circular has been deferred for one year and would be effective after December 31, 2006.
The banks and DFIs have been advised to adhere to 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-recognised 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 would be based on the adequacy of the internal controls relating to financial reporting.
iv) Management of Banks/DFIs while evaluating the effectiveness of internal controls in the statement in the annual report should also comment on related future plans and timing for rectification of the deficiencies, if any, in Internal Controls.