U.S. Agencies Support Basel Committee Guidance on External Audits of Banks

The Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency (“OCC” and, collectively, the “agencies”) expressed their support of the March 2014 guidance on the “external audits of banks” by the Basel Committee on Banking Supervision (“BCBS”). While recognizing that the existing practices in the United States are broadly consistent with the BCBS guidance, the agencies also acknowledged that “differences exist between the standards and practices followed in the United States and the principles and expectations” in the BCBS guidance. For that reason, the agencies outlined their supervision expectations for incorporating the differences between the BCBS guidance and existing standards and practices in the United States. Their suggestions include:

  • Audit committees should monitor and assess the independence of the external auditor by considering whether their policies address the criteria for tendering the audit contract explicitly and whether the contract should be put out for bid periodically.
  • Communication should be open and candid between an institution’s external auditor and supervisors.
  • Audit committees are encouraged to ask how external auditors factor regulatory¬†ratios into their materiality assessments.
  • Audit committees should consider requesting that their external auditor provide written feedback about the audit engagement team’s relationship with the internal audit function, including the team’s observations on the adequacy of the internal audit work, as it relates to the audit of the financial statements or the audit of internal control over financial reporting.
  • Consistent with the March 2003 Interagency Policy Statement on the Internal Audit Function and Its Outsourcing, an institution’s audit committee should consider whether the institution’s internal audit activities are being conducted in accordance with professional standards such as the Institute of Internal Auditors’ International Professional Practices Framework. Audit committees may look to this framework for guidance for both internal and external assessments of the internal audit function.