61-3 On the Verification of Annual Financial Statements

Bank of the Republic of Haiti CIRCULAR No. 61-3

Pursuant to paragraph 11 of Article 83, Articles 58 to 71, 162 and 163 of the Law of May 14, 2012, on banks and other financial institutions, financial institutions and their independent auditors are required to comply with the following provisions concerning the verification of annual financial statements, the certification of certain statutory information transmitted to the BRH, and the relations between the BRH and independent auditors.

1. Definitions

The following definitions apply to this Circular: a) Partner of an accounting firm: a chartered accountant who assumes responsibility for audit missions and is authorized to sign the independent auditor's report. b) Accounting firm or independent auditor: a group of accounting professionals, the primary purpose of which is to offer verification services and related activities, notably tax, administrative consulting, and corporate restructuring. For the purposes of this Circular, the expression "independent auditor" shall be understood as an accounting firm. c) Audit files: the set of files containing working papers supporting the independent auditor's opinion on the financial statements or other financial information. d) Professional staff: a member of the staff of an accounting firm who performs audit missions. e) Auditor's report: a written statement produced by the auditor at the end of his verification, which includes either a favorable opinion or a restriction. The restriction may be a qualification, an adverse opinion, or a disclaimer. f) Verification: the examination of accounting documents and other relevant evidence carried out by an independent auditor with a view to expressing an audit opinion regarding the fairness of the financial statements or other information with respect to the financial position and results of the entity subject to verification. The verification work, performed in accordance with generally accepted auditing standards, requires that the independent auditor also ensure the compliance of the financial statements with generally accepted accounting principles and the standards defined by the tax authorities and by the BRH.

2. Independent Verification of Annual Financial Statements

Every financial institution must have its annual financial statements verified by an independent auditor at the end of its financial year. The independent auditor is appointed for a term of three (3) years, expiring at the end of the general meeting of shareholders called upon to rule on the accounts of the third financial year audited by the interested party. His term is renewable a maximum of two times. The independent auditor cannot be assigned a new mandate by the institution after the expiration of a period of three years. Financial institutions whose total assets, on an individual or consolidated basis, exceed 100 billion gourdes are required to appoint two independent auditors, at least one of whom must be a firm affiliated with a large international audit group. In the event of the appointment of two foreign firms, one of them must intervene in consortium with a local firm. The distribution of work between the two firms must be balanced and subject to rotation at least every two years. The firms must carry out a cross-review of their respective work and jointly prepare and sign the report referred to in Section 5 of this Circular. The provisions of this Circular are applicable to each independent auditor, unless otherwise specified. The duration of the mission is not limited in the event of the appointment of two independent auditors under the conditions set out in this paragraph.

3. Qualification of the Independent Auditor

The independent auditor of a financial institution must be an accounting firm whose partners are all authorized to practice accounting. At least two (2) of the partners must be members of the Order of Certified Public Accountants of Haiti (OCPAH), each possessing five (5) years of experience in executing audit mandates for financial institutions, either as a partner of an accounting firm, or as team leader or project manager, or a combination of the two, and must be independent of the institution. These provisions do not apply to international audit groups designated under the provisions of Section 2 of this Circular. An accounting firm is not authorized to perform the verification of a financial institution if one of its partners or the firm itself: a) holds as a true owner or controls, directly or indirectly, a significant interest in the shares of the institution or an entity of its group; b) is a director, executive, or employee of the institution or an entity of its group, or is the partner of one of the directors, executives, or employees of the institution or an entity of its group; c) benefits from services of the institution at costs or rates outside the normal course of business; d) is related as father, mother, brother, sister, child, or spouse to a person falling under the criteria set out in a), b), and c).

The independent auditor must ensure that members of his professional staff (other than partners) who would be ineligible to perform the verification of a financial institution according to the criteria stated above are not placed in situations of conflict of interest. The independent auditor of a financial institution must relinquish the audit file as soon as he becomes ineligible to exercise his functions under this section. If he does not relinquish the audit file, the institution, after requesting him to do so, must terminate his services if he does not comply with this request. The institution must inform the BRH of its decision. When a financial institution wishes to terminate the services of an independent auditor during his term for a reason other than ineligibility, it must notify the BRH in advance of the reasons for the dismissal. The BRH may ask the independent auditor to express his opinion on the circumstances and reasons for the dismissal.

4. Appointment of the Independent Auditor

The independent auditor is appointed according to the procedure provided for by the law on banks and other financial institutions and by the bylaws of the institution. If the bylaws do not provide for a procedure, the board of directors of the financial institution appoints an independent auditor after ratification of the choice by the general meeting of shareholders. This ratification must appear in the minutes of the general meeting of shareholders. In the thirty (30) days preceding the holding of the general meeting of shareholders aimed at ratifying the choice of an independent auditor, the board of directors must notify the BRH of its choice, communicating to it the draft engagement letter. If it is an independent auditor who has never previously verified the financial statements of financial institutions, the institution must send to the BRH the curriculum vitae of each partner of the selected accounting firm, and the description of the current and past client profile of this firm. The BRH has a period of fifteen (15) days before the holding of the general meeting of shareholders to oppose the appointment of the independent auditor by sending a written and reasoned notice to the board of directors of the institution. The board of directors of the institution must choose another independent auditor if, after discussion with the BRH, the latter maintains its decision. The BRH justifies its refusal based on criteria relating to the independence, competence, and experience of the independent auditor. It is desirable that the independent auditor of the financial institution also be appointed independent auditor of its subsidiaries. If this is not the case, the independent auditor of a subsidiary must provide the independent auditor of the institution with any information relating to the preparation of the consolidated financial statements of the institution. Furthermore, the independent auditor of the subsidiary must allow free access to the audit files to the independent auditor of the financial institution and respect the schedule established by the latter for the completion of the verification work of the subsidiary. Decisions to renew the mandate of an independent auditor must be transmitted to the BRH in the thirty (30) days preceding the holding of the general meeting of shareholders. A copy of the engagement letter signed by the financial institution and by the designated independent auditor, as well as any subsequent amendments, is communicated to the BRH in the thirty (30) days following the signing of the documents.

5. Work and Report of the Independent Auditor

The independent auditor has access to all books, registers, and accounts of the financial institution and its subsidiaries. Thus, any person who has custody of them must facilitate their examination for him. The independent auditor has the right to demand from the financial institution and related legal entities, their administrators, executives, employees, or other representatives, the information and explanations necessary to verify the transactions carried out between the institution and the natural and legal persons related to it. He must verify the methods and procedures put in place in the framework of the prevention of money laundering and terrorist financing. The institution must also allow the independent auditor to communicate with its lawyers and legal advisors regarding ongoing or potential claims. The independent auditor ensures that the financial institution has adopted adequate administrative and accounting organization measures and internal control to comply with applicable laws and regulations. He confirms, for the BRH, that the financial statements on a consolidated and non-consolidated basis transmitted to it at the end of the fiscal year are complete, correct, and prepared according to the rules applicable to them. He ensures that the accounting standards issued by the BRH take precedence over standards issued by other institutions. The independent auditor must perform his verification in accordance with generally accepted auditing standards and ensure that the institution has prepared its financial statements in conformity with generally accepted accounting principles and the rules defined by the Haitian authorities, notably the chart of accounts prescribed by the BRH. The independent auditor's report expressing a favorable opinion must be presented according to the model in Annex I and include three paragraphs: the introduction paragraph, the scope paragraph, and the opinion paragraph. The independent auditor's report expressing a restriction must include a paragraph stating the restriction between the scope paragraph and the opinion paragraph. In this paragraph, the independent auditor must state all his restrictions, provide an adequate explanation of the reasons motivating each restriction, and clearly indicate in what ways and, when this can be determined at reasonable cost, to what extent the financial statements are or may be misstated when the independent auditor was limited in his verification work. The independent auditor's report is an integral part of the verified financial statements. The independent auditor must indicate in his report: a) that he has performed his work in accordance with generally accepted auditing standards; b) if, in his opinion, the financial statements present fairly, in all material respects, the financial position of the institution, the results of its operations, and the evolution of its financial position in accordance with generally accepted accounting principles and Haitian regulations, applied in the same manner as in the previous year; c) the degree of effectiveness of the mechanisms put in place in the framework of the fight against money laundering and terrorist financing; d) a sufficient explanation regarding any restriction included in his opinion; e) any other information determined by the BRH. In exceptional circumstances, the BRH may require the independent auditor to extend the scope of his verification work and report to it directly or mandate him to carry out special work. The fees related to these additional works are at the expense of the financial institution. By exceptional circumstances, the BRH means any element related to the internal control system, accounting methods and principles, or specific transactions that are likely to harm the sustainability of the institution. If, in the normal course of his verification mission, the independent auditor becomes aware of any situation that may put the financial stability of the institution at risk or the existence of illegal operations, he is required to inform the BRH in writing. He is also required to report to the BRH any fact that he considers to be of significant importance for banking supervision. Furthermore, the independent auditor must report to the BRH as soon as he observes any decisions, facts, or developments that: a) influence or may significantly influence the financial situation, result, or equity of an institution; b) jeopardize the going concern; c) lead to the issuance of qualifications or the refusal of certification of the accounts; d) result in a loss of 20% or more of the core equity as defined by the BRH. The same applies to all facts and decisions that come to their knowledge in the exercise of their mission with a parent or subsidiary company of the institution. Any independent auditor who, in good faith, provides such information incurs no civil, criminal, or disciplinary liability for this and cannot be prosecuted. If, after the general meeting of shareholders, the administrators become aware of facts that would have led to significant modifications to the institution's financial statements, they must immediately inform the independent auditor and agree with him on a strategy to prepare modified financial statements and communicate them to the BRH and the shareholders. The independent auditor who becomes aware of or is informed of an error or inaccurate information that he considers important in the financial statements that were the subject of his report must notify the board of directors of the financial institution. The board of directors must, within thirty (30) days of the notice, communicate modified financial statements to the BRH and the shareholders. If the independent auditor deems it necessary to modify his report, the modified financial statements must be accompanied by a copy of the modified report. In the framework of a general or periodic inspection of a financial institution, the BRH may, at its discretion and without professional secrecy being opposable to it under Article 179 of the Law of May 14, 2012, hold interviews with the independent auditor, review all his audit files, and require obtaining copies of working papers or documents contained in the audit files.

6. Relations between the BRH and the Independent Auditor

At the end of the general inspection of an institution, the BRH organizes a meeting with the independent auditor of that institution to inform him of the conclusions and recommendations contained in the post-inspection letter sent to the President of the Board of Directors of the institution. The BRH may request, at any time, the independent auditor of an institution to communicate any information to it and participate in discussions regarding the accounting and financial situation of this establishment, as well as its management and control of its operations. The independent auditor incurs no civil liability for this and cannot be sued or dismissed for this reason. Annex II of this Circular sets out the guiding principles governing the relations between the BRH and the independent auditor of a financial institution.

7. Availability of Verified Financial Statements

Every financial institution governed by the Law of May 14, 2012, must send its verified financial statements to the BRH no later than one hundred twenty (120) days after the end of the financial year. Every institution governed by said law is required to make available to the public, for consultation in its premises, and to publish, if applicable, on its website, a copy of the verified financial statements including the independent auditor's report and the notes related to the financial statements.

8. Certification of the Reliability of Information Transmitted to the BRH

No later than one hundred twenty (120) days after the end of the accounting year, the independent auditor of a financial institution must provide an opinion on the degree of reliability of the financial statements. He must also issue an opinion on the conformity of the production process of the Balance Sheet and Income Statement declaration forms and compliance reports transmitted to the BRH with the internal financial data of the institution and with the declarative rules set by the BRH, and on the quality of the internal control device of this process. The independent auditor's opinion must be addressed to the members of the board of directors of the institution according to the format prescribed in Annex III of this Circular. Upon receipt, the institution must send to the BRH the independent auditor's opinion accompanied by a description of the work performed, the management letter, and the results obtained.

9. Specific Provisions for Stockbrokers

The provisions of this Circular are applicable to stockbrokers, subject to the following adaptations motivated by the exercise of this profession by natural persons. The provisions regarding independent auditors apply to certified accountants ensuring the audit of the accounts of stockbrokers. The provisions regarding the board of directors of companies apply to the natural person authorized to exercise the activity of stockbroker. The appointment of an independent auditor or a certified accountant by a stockbroker must be notified to the BRH at least thirty (30) days before the effective date, with a copy of the engagement letter.

10. Sanctions

In the event that a financial institution fails to have its books and accounts verified pursuant to Section 2 of this Circular, the BRH may, after notice to the institution, have a special verification carried out at the institution's expense. The BRH may require an institution to rectify any situation relating to violations of the provisions of this Circular or noted by the independent auditor pursuant to Sections 5 and 8 of this Circular. In the event of non-compliance with the rectification actions required by the BRH, the institution is subject to a penalty of fifty thousand gourdes (HTG 50,000.00) per day of infringement from the date on which the infringement is notified to it by the BRH. Any penalty will be deducted from the balance of one of the institution's accounts domiciled at the BRH. In the absence of the institution concerned holding an account at the BRH, the payment must be made by check payable to the Bank of the Republic of Haiti, no later than five (5) business days after receipt of the notification of the penalty amount. In the event of non-payment within the time limits, additional penalties of two thousand five hundred gourdes (HTG 2,500.00) per day of delay will be applied.

11. Entry into Force

The provisions of this Circular replace those of Circular No. 61-2 and enter into force on November 3, 2020.

Port-au-Prince, October 5, 2020

J. Bader

List of Annexes Annex I: Independent Auditor's Report Annex II: Relations between the BRH and the Independent Auditor Annex III: Certification of the Reliability of Balance Sheet and Income Statement Declaration Forms Transmitted to the BRH

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ANNEX I INDEPENDENT AUDITOR'S REPORT Section 5 of Circular No. 61-3

To the Members of the Board of Directors of [Name of the Institution] (To Mrs./Mr. [Name of the Stockbroker])

We have verified the attached balance sheets of your institution as of September 30 as well as the statements of revenues and expenses, the evolution of shareholders' equity, and the evolution of the financial position for the years ended on these dates. The responsibility for these financial statements lies with the management of the institution. Our responsibility is to express an opinion on these financial statements based on our verification.

Our verification was carried out in accordance with generally accepted auditing standards. These standards require that the verification be planned and executed in a manner to provide a reasonable degree of assurance as to the absence of material misstatements in the financial statements. The verification includes sampling of evidence supporting the amounts and other information provided in the financial statements. It also includes an evaluation of the accounting principles followed and significant estimates made by management as well as an assessment of the overall presentation of the financial statements.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the institution as of September 30, as well as the results of its operations and the evolution of shareholders' equity and its financial position for the years ended on these dates in accordance with generally accepted accounting principles.

Place and Date Signature

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ANNEX II GUIDING PRINCIPLES Section 6 of Circular No. 61-3

Control The BRH requires every financial institution governed by the Law of May 14, 2012, to have its annual financial statements verified by an independent auditor. The work carried out by the latter consists of an extensive verification carried out with the aim of expressing an...