BANK OF THE REPUBLIC OF BURUNDI

THE GOVERNOR

CIRCULAR NO. 16/2018 ON THE APPROVAL AND EXERCISE OF THE FUNCTION OF STATUTARY AUDITORS IN CREDIT INSTITUTIONS, ISSUED PURSUANT TO LAW NO. 1/17 OF AUGUST 22, 2017 GOVERNING BANKING ACTIVITIES

Having regard to Law No. 1/34 of December 2, 2008 establishing the Statutes of the Bank of the Republic of Burundi, particularly Articles 7 (paragraphs 4 and 6) and 8;

Having regard to Law No. 1/17 of August 22, 2017 governing banking activities, particularly Articles 3, 15, 49, 50, 55, 63, and 74 to 81;

Having reviewed Circular No. 16/08 on the approval of statutory auditors for banks and financial institutions;

The Bank of the Republic of Burundi, hereinafter referred to as the "Central Bank", hereby enacts:

CHAPTER I: GENERAL PROVISIONS

Article 1: Subject Matter

This circular aims to specify the procedures for the approval and exercise of the statutory auditor function within credit institutions.

Article 2: Obligation for a Credit Institution to Have a Statutory Auditor

Credit institutions must have a statutory auditor, who must be an approved legal entity acting as a chartered accountant and established as an accounting or audit firm.

CHAPTER II: APPROVAL OF THE STATUTARY AUDITOR

Article 3: Approval of the Statutory Auditor for a Credit Institution

Before assuming office, the statutory auditor of a credit institution must be approved by the Central Bank, except for those designated by the latter under Article 9 of this circular.

The renewal of the statutory auditor's term is also subject to prior approval by the Central Bank.

Article 4: Term of Office of the Statutory Auditor

The term of office of the statutory auditor with a credit institution is limited to two financial years.

A statutory auditor may not hold the same position for more than two consecutive terms with the same credit institution.

Article 5: Conditions for Approval as a Statutory Auditor of a Credit Institution

The conditions to be met for approval as a statutory auditor of a credit institution are as follows:

• submit current and notarized articles of incorporation proving legal entity status as an accounting or audit firm;
• submit a certificate no older than three months issued by the Order of Chartered Accountants proving registration as an approved chartered accountant;
• demonstrate three (3) years of experience in exercising the statutory auditor or financial audit function and having produced reliable reports;
• meet, for the firm, its manager, and personnel assigned to the statutory audit mission within the institution, the integrity and honorability criteria set forth in Article 15 of Law No. 1/17 of August 22, 2017 governing banking activities;
• demonstrate independence from the credit institution, its management, board of directors, shareholders, and companies where these individuals serve as managers, executives, directors, or shareholders, as well as from the public administration. This independence vis-à-vis the audited credit institution must also be maintained in accordance with Articles 75 and 77 of Law No. 1/17 of August 22, 2017 governing banking activities. An annex declaration must be completed by the statutory auditor for this purpose;
• provide technical references of the firm;

- provide the names and curricula vitae of the key personnel responsible for performing the statutory audit work.

Unless a waiver is granted by the Central Bank, statutory auditors must have their domicile in Burundi.

Article 6: Required Education Level for Team Members Performing Statutory Audit Work

Each team member performing statutory audit work in a credit institution must hold at least a university degree (Bachelor's or equivalent) in finance, audit, accounting, management, or an equivalent qualification in economics, and possess at least three years of experience exercising the statutory auditor or financial audit function.

Article 7: Withdrawal of Approval of a Statutory Auditor

If the approval of a statutory auditor for a credit institution was obtained based on false or misleading information, or if the initial approval conditions are no longer met, the Central Bank withdraws the approval without prejudice to sanctions provided under Article 76 of Law No. 1/17 of August 22, 2017 governing banking activities and the circular on the sanctions matrix.

Article 8: Notification to the Central Bank of Suspension, Revocation, and Resignation of the Statutory Auditor

The suspension, revocation, and resignation of the statutory auditor are notified without delay to the Central Bank at the initiative of the concerned credit institution.

Prior to the suspension or revocation of a statutory auditor, any credit institution must first request the opinion of the Central Bank, to which it communicates the grounds for suspension or revocation.

The statutory auditor may, upon request, also be heard by the Central Bank. If the grounds invoked by the concerned credit institution are deemed unfounded, the Central Bank opposes this suspension or revocation decision and orders the continued exercise of said statutory auditor.

In case of resignation, the statutory auditor must inform the Central Bank of the reasons motivating their resignation.

CHAPTER III: EXERCISE OF THE STATUTARY AUDITOR FUNCTION

Article 9: Filling a Vacant Statutory Auditor Position

In the event of a vacancy in the statutory auditor position, for any reason, the concerned credit institution must designate a replacement within three months. Failing this, the Central Bank itself designates a statutory auditor for the current financial year at the expense of the credit institution.

Article 10: Access to Information

The statutory auditor must have unrestricted access to all branches of the credit institution and be provided with any information necessary for the exercise of their duties.

Article 11: Scope of the Statutory Auditor's Work

The statutory auditor examines the accounting principles and valuation methods used by the credit institution, particularly regarding:

• the classification of loans and their coverage by provisions, as well as the accounting for related interest charges;
• the accounting and treatment of restructured loans, along with related provisions and interest charges;
• the charging of irrecoverable loans to the operating account;
• the accounting and valuation of various securities portfolios;
• the establishment of provisions for risks and expenses;
• the recognition of interest and commissions in the operating account;
• the valuation and amortization of tangible and intangible fixed assets;
• the revaluation of tangible and financial fixed assets;
• the recording and valuation of off-balance sheet items;
• the reliability of the information and accounting control systems;
• the quality of the internal control and risk management framework.

Furthermore, the statutory auditor must:

• verify the actual amount of equity;
• verify the actual cash position;
• conduct a complete review of the income statement components, including general expenses, charges, and exceptional items;
• verify the justification of charges paid for outsourced services or technical assistance, with regard to contracts and work actually performed by the service provider.

The statutory auditor is prohibited from providing consulting or assistance services to the credit institution whose accounts they certify.

Article 12: Content of the Statutory Auditor's Report

The statutory auditor's report must express an opinion on the financial statements, explicitly certifying their regularity and fairness in their entirety. It must comprise two parts:

a. The first part presenting comments on the following aspects:

• compliance with accounting standards and charts of accounts applicable to credit institutions;
• the balance sheet and operating account status;
• changes in equity;
• the cash flow statement;
• the evolution of liquidity and solvency;
• asset quality and provisions;
• risk allocation, particularly the concentration of loans and deposits;
• loans or other transactions made under preferential conditions, particularly with related and/or affiliated parties;
• the adequacy of resources to uses;
• the status of written-off loans and related recoveries;
• guarantees related to commitments;
• off-balance sheet commitments.

b. In the second part of its report, the statutory auditor must provide a reasoned opinion on the quality of the internal control system, the information and accounting system, risk management (credit, liquidity, market, governance, operational risks, etc.), the follow-up of recommendations from internal and external audits, as well as compliance with legal and regulatory provisions.

Article 13: Time Limit for Submitting the Report to the Central Bank

The statutory auditor must submit to the Governor of the Central Bank a copy of the report covering the first half of the current financial year, no later than two months after the closing date.

They must also submit to the Governor of the Central Bank, one month before the Ordinary General Meeting, a copy of the report covering the entire financial year for the previous year.

Any delay in submitting the report by the statutory auditor is subject to sanctions provided under the circular on the sanctions matrix.

Article 14: Obligation of the Statutory Auditor to Inform the Central Bank

The statutory auditor is required to immediately inform the Central Bank and the Board of Directors of the credit institution of any fact or decision known during their mission that constitutes a violation of applicable legal or regulatory provisions, particularly those likely to:

• seriously affect the financial position of the credit institution;
• impair the proper functioning of the institution's bodies;
• endanger the ongoing operations of the credit institution;
• lead to the issuance of qualifications or refusal of account certification.

Furthermore, in exercising their duties, the statutory auditor must inform the Central Bank of frauds, mismanagement, committed offenses, and any other acts or events noted by them or brought to their attention, which are likely to adversely affect the solvency and liquidity of the credit institution or harm the reputation of the institution and the financial center.

Article 15: Obligation to Provide All Information Required by the Central Bank

The statutory auditor is required to provide all information requested by the Central Bank and make working documents available upon request.

The Central Bank may organize meetings with the statutory auditor to discuss significant risks incurred by the credit institution and the conditions for carrying out their mission.

Article 16: Working Standards of the Statutory Auditor

The statutory auditor of a credit institution exercises their audit in accordance with generally accepted professional standards, while respecting the regulations of the Central Bank. In case of non-compliance and without prejudice to other disciplinary or criminal proceedings, the Central Bank may apply one of the following sanctions:

• a warning;
• a prohibition on continuing audit operations for the credit institution;
• a prohibition on practicing in this capacity for at least three financial years within the covered institutions;
• a permanent prohibition on practicing in this capacity within the covered institutions.

The Central Bank notifies the Order of Chartered Accountants, all credit institutions, and the professional association to which the institution belongs of the sanction imposed on the statutory auditor.

For the last two sanctions, the Central Bank also notifies all covered institutions of the sanction imposed on the statutory auditor.

CHAPTER IV: FINAL PROVISIONS

Article 17: Entry into Force

This circular replaces Circular No. 16/08 of December 1, 2008, and enters into force on the day of its publication on the Central Bank's website and in the Official Gazette of Burundi.

Done in Bujumbura, on August 17, 2018

Jean CIZA
Governor.

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