Instruction No. 18/2023 on Methodological Procedures for External Auditors of Financial Institutions

INSTRUCTION NO. 18/2023 of December 19 SUBJECT: FINANCIAL SYSTEM

• Methodological Procedures for the External Auditor Given the need to define the accounting information reporting requirements that govern the activity of External Audit in Financial Institutions under the supervision of the National Bank of Angola; Pursuant to the combined provisions of Article 236 of Law No. 14/21, of May 19, Law on the General Regime of Financial Institutions, Law No. 03/01, of March 23, Law on Accounting and Auditing, the Statute of the Order of Accountants and Certified Public Accountants, approved by Presidential Decree No. 232/10, of October 11 and amended by Presidential Decree No. 318/14, of November 28, read together with points d) and f) of paragraph 1 of Article 31 and paragraph 1 of Article 98, both of Law No. 24/21, of October 18, Law of the National Bank of Angola. DETERMINE:

1. Object The present Instruction establishes the accounting information reporting requirements that External Auditors must observe, in accordance with the provisions of Notice No. 12/23, of December 04, on External Audit.
2. Scope 2.1. The present Instruction applies to Financial Institutions, as provided for in paragraphs 2 and 3 of Article 7 of Law No. 14/21, of May 19, Law on the General Regime of Financial Institutions. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 2 of 29 2.2. Management Companies of Shareholdings under the supervision of the National Bank of Angola, provided for in Article 229 of Law No. 14/21, of May 19, Law on the General Regime of Institutions, are also covered by the provisions of the present Instruction.
3. Report Preparation 3.1. External Auditors must prepare a report on the audited financial statements, which contains accounting information, as provided for in Article 19 of Notice 12/2023, of December 04, on External Audit. 3.2. The reporting obligation provided for in this article applies only to Non-Banking Financial Institutions, with a total asset base, on an individual basis, calculated at the end of the preceding fiscal year, exceeding Kz 4,000 (four billion Kwanzas). 3.3. For the purposes of the provision in the previous subparagraph, the report must be submitted to the National Bank of Angola, with the knowledge of the Board of Directors and the Supervisory Body of the audited Financial Institution.
4. Information Reporting 4.1. The external auditors of Banking Financial Institutions must report annually, by April 30 of the following year, a report containing accounting information, in accordance with the provisions of Annex II of this Instruction. 4.2. The external auditors of Non-Banking Financial Institutions, under the terms provided for in subparagraph 3.2 of point 3 of this Instruction, must report annually to the National Bank of Angola, a report containing accounting information, in accordance with the provisions of Annex III of this Instruction.
5. Sanctions Non-compliance with the provisions of this Instruction constitutes an offense provided for and punishable under Law No. 14/21, of May 19 - Law on the General Regime of Financial Institutions. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 3 of 29
6. Doubts and Omissions Doubts and omissions arising from the interpretation and application of this Instruction shall be resolved by the National Bank of Angola.
7. Entry into Force This Instruction shall enter into force on the date of its publication. PUBLISH. Luanda, December 19, 2023. THE ACTING GOVERNOR PEDRO RODRIGO GONÇALVES DE CASTRO E SILVA ANNEX I Model Letter Regarding the Accounting Report To Banking Supervision Department of the National Bank of Angola Non-Banking Supervision Department of the National Bank of Angola (Name of institution) (Address) Dear Sirs, We hereby submit the report as established by Instruction No. xx/xx, of xx of xx, on External Audit, prepared in our capacity as External Auditor of (name of institution) (hereinafter referred to as (shortened entity name) or Institution [or: Bank/other institution]), which aims to comply with the provisions of point a) of paragraph 1 of Article 19 of Notice No. xx/20xx of xx of xx. This report, in its accounting component, results from the audit of the financial statements for the year ended __ of _____ of ____, of (entity name), and no additional specific procedures have been carried out for the issuance of this report. We remain available to provide any information or clarification that may be deemed necessary after reading this report. Without further ado, we present our best regards and subscribe. Sincerely Identification of the Certified Public Accountant (External Auditor) Signature of the responsible person CONTINUATION OF INSTRUCTION NO. 18/2023 Page 5 of 29 Annex II Accounting Report – Banking Financial Institutions
8. Mandate, Strategy, and Audit Procedures 1.1 Scope and Mandate 1.1.1 Our work consisted of auditing the accounts of (entity name) [or: Bank], with a view to issuing the Report(s) of the Independent Auditor(s) [individual and consolidated] for the year ended __ of _____ of __, which included a complete examination of the [individual and consolidated] financial statements of (entity name) [or: Bank], comprising the balance sheet, the income statement by nature, [of comprehensive income,] the statement of changes in equity, and the statement of cash flows for the year and the explanatory notes, prepared in accordance with International Financial Reporting Standards. 1.1.2 Our responsibility is to express an independent opinion on these financial statements based on our audit, which was conducted in accordance with International Standards on Auditing. These standards require us to comply with ethical requirements and to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 1.1.3 The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. 1.1.4 The selected procedures depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements due to fraud or error. 1.1.5 The auditor considers internal control relevant to the preparation and presentation of the financial statements by the institution when making risk assessments, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the institution's internal control. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 6 of 29 1.1.6 The audit also involves evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by Management/Board of Directors, as well as evaluating the overall presentation of the financial statements. 1.1.7 As a result of this work, we issued on [XXX] the Report of the Independent Auditor [unmodified]. 1.1.8 We were appointed auditors of (name of institution) for the first time at the general meeting of shareholders held on __ of _____ of __ for a mandate covering the period between __ and __. 1.1.9 As part of the audit procedures necessary for the issuance of the aforementioned report(s), the following schedule was established for the year ended __ of _____ of __: 1.2 Strategy and Audit Procedures 1.2.1 The work on the individual and consolidated financial statements of the institution included the following elements: a) Understanding and assessment of accounting and internal control systems, in order to define the extent and level of complexity; b) Verification, on a sample basis, of supporting amounts and disclosures in the financial statements, assessment of adopted accounting principles, and evaluation of estimates, based on judgments and criteria defined by Management; and, c) Overall assessment of the presentation of financial information. 1.2.2 The nature and extent of the tests are defined according to our judgment of the existing internal controls, based on the defined materiality levels and associated risk, covering all significant aspects of the Institution's business. 1.2.3 The relevant items within the scope of the audit of the individual and consolidated financial statements, referring to __ of ______ of ___ of the institution, indicating the audit methodology followed, are presented in the table(s) below. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 7 of 29 Ø Examples.
9. Individual Financial Statements] [Consolidated] The approach followed for the financial statement items where material misstatement risks were identified was as follows: Item (examples) Tests of controls Substantive analytical Tests of detail Cash and bank balances Investments in Central Banks and other Credit Institutions Financial assets at fair value through profit or loss Resources from Central Banks and other Credit Institutions
10. Materiality 3.1 The determination of materiality is a matter of professional judgment and is affected by our perception of the financial information needs of the users of the financial statements. 3.2 For the purposes of the preceding paragraph, we determined the overall materiality level(s) presented below, for the execution of audit work on the [individual and consolidated] financial statements for the year ended __ of _____ of __. 3.3 The materialities and qualitative assessments contributed to the planning and definition of the scope of our work, as well as to the nature and extent of our audit procedures and to the evaluation of the effects of any misstatements, individually or in aggregate, in the financial statements. 3.4 No materialities were defined for particular classes of transactions, account balances, or disclosures. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 8 of 29
11. Group Audit (if applicable) 4.1 Present the audit strategy per significant component, namely xxxx% of assets, revenues, and results covered by full audit, audit of specific elements, and/or specific audit procedures. Scope of Group Audit Assets Revenues Other reference data Full audit XX% XX% XX% Audit of account balance(s) XX% XX% XX% Specific audit procedures XX% XX% XX% Subject to audit procedures (20XX) XX% XX% XX% Subject to audit procedures (20XY) XX% XX% XX% 4.2 Adapt as necessary in relation to the examples whenever only individual accounts are considered. 4.3 If (name of institution) does not present consolidated financial statements, this is not applicable.
12. Principal Accounting Policies and Valuation Methods 5.11 The principal accounting policies used by (entity name) [or: Bank] in preparing its financial statements are described in the notes to the financial statements for the year ended __ of _____ of __, and are in compliance with International Financial Reporting Standards (IFRS). 5.12 Evaluate the consistency of the valuation methods used compared to the previous year and the impact. Include a description of the main accounting estimates disclosed in the Notes to the financial statements. 5.13 The accounting policies used in the current year are consistent with those reported in the previous year. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 9 of 29 5.14 IFRS establish a set of accounting treatments and require the Board of Directors to make judgments and estimates necessary to decide on the most appropriate accounting treatment at each reporting date, which affect the amounts of assets and liabilities recognized, the presentation of contingent assets and liabilities at the end of each fiscal year, as well as the revenues and expenses recognized during each fiscal year. 5.15 The main estimates and judgments used in the preparation of the financial statements for the year ended __ of _____ of __ are presented in the Notes to the financial statements. 5.16 Actual results may differ from those originally estimated, considering the subjectivity inherent in the realization of future expectations. 5.17 As disclosed in the Notes to the financial statements, the significant estimates used in the preparation of the financial statements are as follows: a) Our understanding of the judgments made by the Management Body regarding accounting estimates is based solely on the work performed in the context of the financial statements as a whole. b) We do not express any assurance regarding individual items in the financial statements. c) Include an assessment of the degree of complexity, subjectivity, and other inherent risk factors of the methods, assumptions, and data of the most critical estimates. d) With reference to December 31, xxx, the Institution [or: Bank] holds [does not hold] structured and complex instruments or products, [adapt and detail the nature of the instruments if applicable (e.g., derivatives, financial instruments valued using unobservable market parameters – Level 3 of the fair value hierarchy of IFRS 13), etc.)]. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 10 of 29
13. Significant Events 6.1 The management report must contain a true and fair exposition of the evolution of the business and the company's situation, and must, in particular, indicate the evolution of management in the different sectors where the company operated, as well as the acquisition and disposal of assets. 6.2 The company presents in chapter XXX of the Management Report and in the Notes to the financial statements a description of significant events [after the end of the fiscal year], additionally. 6.3 Description of examples of significant events to consider in the assessment of the management report and accounts: a) Acquisition or sale of material financial participations; b) Significant changes in governance and/or composition of the corporate bodies; c) Aspects that may jeopardize or have jeopardized the Entity's continuity; d) Significant contracts outside the normal course of the Entity's business; e) Changes resulting from the revision or entry into force of IFRS with a significant impact on the financial statements of the current or subsequent years; f) Other events occurring during the fiscal year with a relevant impact on the financial statements of the period under review; and g) Significant subsequent events occurring up to the date of issuance of the report.
14. Legal, Financial, and Organizational Situation of the Financial Institution 7.1 The management report must contain a true and fair exposition of the evolution of the business and the company's situation, and must, in particular, indicate the existence and evolution of any representations of the company. 7.2 The management report presents in chapter XXX a description of the legal, financial, and organizational situation. CONTINUATION OF INSTRUCTION NO. 18/2023 Page 11 of 29
15. Internal Controls over Procedures and Control Functions 8.1 Refer whenever internal control deficiencies with an impact on financial reporting are identified, communicated to the supervisory body. 8.2 The Board of Directors is responsible for maintaining an appropriate Internal Control System to enable the preparation of financial statements free from material misstatement due to fraud or error, as well as ensuring compliance with applicable legislation and regulations for the institution's activity. 8.3 The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. 8.4 The selected procedures depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements due to fraud or error. 8.5 The auditor considers internal control relevant to the preparation and presentation of the financial statements by the institution, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. 8.6 During our work, no significant internal control deficiencies related to financial reporting were identified. 8.7 Adapt the text as necessary whenever significant deficiencies are communicated. 8.8 During our work, the following significant internal control deficiencies related to financial reporting were communicated: Deficiencies Management response CONTINUATION OF INSTRUCTION NO. 18/2023 Page 12 of 29 Deficiencies Management response
16. Business Performance 9.1 Information on the description and analysis of business performance compared to the previous year is the responsibility of the institution, and should be prepared by it and reviewed by the External Auditor to ensure that it is consistent with the audited financial statements for the year ended __ of __ of __. 9.2 Assess the extent to which the information referred to in the previous paragraph is already disclosed in the management report. 9.3 The management report must contain a true and fair exposition of the evolution of the business and the company's situation, and must, in particular, indicate the existence and evolution of any representations of the company. 9.4 The management report presents in chapter XXX a description of the institution's activity and in chapter xxxx an assessment of the company's foreseeable evolution.
17. Evolution of Net Equity Position, especially the Nature and Extent of Off-Balance Sheet Assets and Liabilities 10.1 Description and analysis of the evolution of the net equity position compared to the previous year, especially the nature and extent of off-balance sheet assets and liabilities. 10.2 Information on the description and analysis of business performance compared to the previous year is the responsibility of the institution, and is subject to review by the External Auditor to ensure that it is consistent with the audited financial statements for the year ended __ of __ of __. 10.3 Assess the extent to which this information is already disclosed in the management report. 10.4 The management report must contain a true and fair exposition of the evolution of the business and the company's situation, and must, in particular, indicate the existence and evolution of any representations and the CONTINUATION OF INSTRUCTION NO. 18/2023 Page 13 of 29 foreseeable evolution of the company. 10.5 The management report presents in chapter XXX a description of the institution's activity and in chapter xxxx an assessment of the company's foreseeable evolution.
18. Comments and Explanations on Balance Sheet and Income Statement Accounts, considering the Materiality Principle 11.1 We refer to points 6 and 7 above, as they are partially related. 11.2 Given the provisions of paragraph 112 of IAS 1, this information, if material, should already be included in the financial statements, and this point will only apply if the Auditor considers it relevant to add any comments or explanations on balance sheet or income statement accounts for the year ended __ of __ of __ that are not included in the Notes to the financial statements or the management report and which, being material, gave rise to reservations.
19. Classification, Measurement, and Disclosure of Balance Sheet Items 12.1 Comment and indicate, if adjustments related to the classification and measurement of balance sheet or income statement items (unadjusted differences) were identified and reported in the statement of responsibilities, or if non-compliance with IFRS disclosure requirements was identified with reference to the year ended __ of _____ of __, if applicable. 12.2 Adapt, as necessary, the text for a situation where adjustments were identified. 12.3 The misstatements identified as a result of our audit of the financial statements for the year ended __ of _____ of __, and which were not recorded, are immaterial, individually and in aggregate, in the context of the Entity's financial statements. 12.4 The misstatements are detailed as follows: a) Include amount; CONTINUATION OF INSTRUCTION NO. 18/2023 Page 14 of 29 b) Affected financial statement items; and, c) Brief description. 12.5 During our audit, the following instances of non-compliance with IFRS disclosure requirements were also identified: xxxxx. 12.6 Include a reference to the specific IFRS paragraph and a brief description, if necessary. 12.7 The misstatements related to the above disclosures were not considered material. 12.8 Adapt, as necessary, the text for a situation where adjustments were identified. 12.9 During our audit, no misstatements were identified regarding the classification, measurement, and disclosure of the financial statements for the year ended __ of _____ of __.
20. Relevant Agreements and Pending Legal Disputes 13.1 Indicate in this section the relevant agreements and pending legal disputes against the institution that may impact the net equity position, and subsequent events should be considered. 13.2 The agreements and pending legal disputes against the institution are described in notes xxxxx and are summarized as follows:
21. Comfort Letters Issued 14.1 Include in this section a detail of the comfort letters issued by the Entity with reference to __ of _____ of __, as well as a summary description of their content. This information should be prepared by the institution and reviewed by the External Auditor. 14.2 To the best of our knowledge, no other comfort letters were issued beyond those described in notes xxxxx.
22. Profit Position (Income Statement) CONTINUATION OF INSTRUCTION NO. 18/2023 Page 15 of 29 15.1 Include in this section a description and analysis of the profit position compared to the previous year, including a description of the most important sources and profit-generating factors. 15.2 The information referred to in the previous paragraph is the responsibility of the institution, and is subject to review by the External Auditor to ensure that it is consistent with the audited financial statements for the year ended __ of __ of __. 15.3 Assess the extent to which