Basic Requirements for the Audit Committee

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Print Version

Date of creation: 2025-09-16

Approved

by the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of November 20, 2003 No. 32/7

BASIC REQUIREMENTS

for the Audit Committee

(In the edition of the Resolutions of the Board of Directors of the National Bank of the Kyrgyz Republic of February 15, 2012 No. 8/2, July 4, 2012 No. 28/6, November 16, 2012 No. 43/1, September 16, 2015 No. 53/10, June 15, 2017 No. 2017-P-12/25-7, October 17, 2018 No. 2018-P-12/43-2, February 26, 2020 No. 2020-P-12/8-7, January 17, 2024 No. 2024-P-12/1-3, January 22, 2025 No. 2025-P-12/2-2-(NPA), September 12, 2025 No. 2025-P-12/46-1-(NPA))

1. General Provisions

1.1. These Basic Requirements apply to commercial banks, including those conducting operations in accordance with the principles of Islamic banking and finance, and JSC "Financial Company of Credit Unions".

(In the edition of the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of January 17, 2024 No. 2024-P-12/1-3)

1.2. The purpose of this document is to establish requirements mandatory for compliance by the Bank's Audit Committee (hereinafter referred to as the Committee).

1.3. The purpose of creating the Committee is to increase the efficiency of the Bank's Board of Directors and optimize the decisions it makes. In addition, the Committee is tasked with strengthening control over the internal control system, external and internal audit, as well as contributing to increasing the reliability of financial reporting and the efficiency of the Bank's activities, improving interaction between members of the Board of Directors, Bank management, internal audit service, external audit, and the National Bank of the Kyrgyz Republic (hereinafter - the National Bank). This, in turn, will improve the quality of information provided to external users.

(In the edition of the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6)

1.4. The Committee must be established in the bank, regardless of the types of activities carried out.

1.5. (Excluded in accordance with the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6)

2. Regulations on the Committee

2.1. The activities of the Committee are regulated by the Regulations on the Committee, which are approved by the Bank's Board of Directors.

2.2. This document must define:

• the purpose and tasks of the Committee;
• the organization of the Committee - composition, frequency and time of meetings;
• the rights and duties of the Committee;
• the procedure for interaction with the Board of Directors, Bank management, internal and external auditors, and for banks conducting operations in accordance with the principles of Islamic banking and finance, also with the Committee for the Management of Funds of Investment Account Holders, the authorized structural unit for internal Shariah audit (or authorized internal auditor), and the Shariah Council;
• the procedure for reporting on work done to the Board of Directors.

(In the edition of the Resolutions of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6, September 12, 2025 No. 2025-P-12/46-1-(NPA))

3. Organization of the Committee

3.1. The Committee is created by the Board of Directors and must consist of at least three members of the Bank's Board of Directors. Two of the three members of the Board of Directors must be independent members of the Board of Directors meeting the criteria established by the legislation of the Kyrgyz Republic. At the same time, the Chairman of the Audit Committee must necessarily be one of the independent members of the Bank's Board of Directors who does not head the Risk Committee.

(In the edition of the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of October 17, 2018 No. 2018-P-12/43-2)

3.2. All members of the Committee must be able to read and understand basic financial statements, including the Bank's balance sheet, statement of financial results, and statement of cash flows. At least one member of the Committee must have professional experience in accounting, financial management, or auditing. In banks conducting operations in accordance with the principles of Islamic banking and finance, at least one member of the Committee must know the standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

(In the edition of the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6)

3.3. The Committee must establish procedures ensuring the confidentiality and anonymity of receiving any information, recommendations, and suggestions regarding financial reporting and internal control.

3.4. Committee meetings are held regularly, no less than once a quarter. The Committee must be convened by the Board of Directors or by two members of the Committee.

Each member of the committee participating in the decision-making must:

• be aware of the essence of the issue under consideration and be independent in judgment (capable of acting independently, regardless of anyone's influence on the results of his conclusions, findings, and under conditions excluding any external influence on the expression of opinion);
• be aware of the impact of his decisions on the Bank's activities;
• assess the possibility of arising risks and consequences of his decisions.

The opinion of a committee member who has comments and suggestions on the issue under consideration and disagrees with the adopted decision must be expressed during voting and reflected in the minutes. The minutes must be signed by all committee members present at the meeting and the committee secretary. Committee members who did not participate in the meeting must be familiarized with the minutes and adopted decisions under signature.

(In the edition of the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of February 15, 2012 No. 8/2)

3.5. To ensure the efficiency of the Bank's activities, the Chairman or a member of the Bank's Board of Directors, the head of the internal audit service, and the external auditor may attend Committee meetings, but without voting rights. The circle of meeting participants should be limited to those who are familiar with the agenda items or are responsible for them.

3.6. The term of office of Committee members must be set for one year.

(In the edition of the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6)

4. Functions of the Committee

4.1. The Committee carries out its activities within the framework of the legislation of the Kyrgyz Republic, taking into account the requirements of regulatory acts and other documents of the National Bank, performing the following main functions:

• establishing accounting procedures and supervising their implementation;
• developing recommendations for the General Meeting of Shareholders on the appointment of external auditors and, if necessary, initiating special audit inspections of the Bank, attracting experts to assist the Committee at the Bank's expense;
• supervising compliance with legislation, including regulatory acts of the National Bank, and reporting on this issue to the Bank's Board of Directors.

4.2. In its activities, the Committee may not be limited to performing the functions provided for in paragraph 4.1, in order to ensure the functioning of an adequate internal control system in the Bank.

5. Rights of the Committee

5.1. To perform its duties, the Committee has the right:

• to recommend to the Board of Directors the candidacy of the Bank's internal auditor;
• to receive any required information and reporting related to the Bank's activities from Bank employees, Bank management, and the external auditor;
• to require the conduct of any investigation;
• to receive, if necessary, reports on the results of the Bank's activities and recommendations of the internal auditor without the signature of Bank management, as well as management plans for implementing these recommendations;
• to request from the external auditor a work plan, conclusions, and recommendations on the results of the conducted audit.

6. Duties of the Committee

6.1. The Committee is obliged:

• to analyze the functioning of the internal control system;
• to evaluate the Bank management's activities on implementing recommendations of internal and external auditors regarding the internal control system;
• to evaluate the internal control system ensuring the reliability and accuracy of financial information provided to Bank management, the National Bank, and external users;
• to find out from Bank management, internal and external auditors the presence of significant risks in the Bank's activities and plans for their minimization;
• to analyze significant issues of accounting and reporting, and to understand their impact on financial reporting;
• to consider jointly with internal and external auditors any facts of fraud, illegal actions, deficiencies in the internal control system, and other similar issues;
• to evaluate the annual financial statements, determining their completeness and appropriate reflection of information known to Committee members;
• to analyze the activities and organizational structure of the internal audit service;
• to analyze and evaluate the implementation of the quality program developed by the head of the internal audit service;
• to recommend to the Board of Directors the candidacy of the external auditor and the amount of his remuneration based on an analysis of information about audit companies for subsequent submission to the General Meeting of Shareholders;
• to consider the adequacy of the external audit program to the size of the Bank and the complexity of operations conducted;
• to evaluate the independence of the external auditor, analyze other services provided by the audit company;
• to evaluate the experience of the external auditor, the sufficiency of resources of the audit company, and the correctness of the audit's definition of the risk area;
• to review the Bank's annual report and the management letter prepared by the external auditor for submission to the Board of Directors;
• to analyze the system of control over compliance with the legislation of the Kyrgyz Republic, requirements of the National Bank, the Charter, regulations, and policies established by the Board of Directors;
• to analyze the results of inspections conducted by relevant authorities;
• to evaluate the efficiency of Bank management's activities;
• in banks conducting operations in accordance with the principles of Islamic banking and finance - to analyze and evaluate the Bank's activities on compliance with Shariah standards, also based on reports from the authorized structural unit for internal Shariah audit (or authorized internal auditor).

(In the edition of the Resolutions of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6, September 12, 2025 No. 2025-P-12/46-1-(NPA))

6.2. In banks conducting operations in accordance with the principles of Islamic banking and finance, one member of the Audit Committee must be included in the composition of the Committee for the Management of Funds of Investment Account Holders (in case such a committee exists in the Bank).

(In the edition of the Resolutions of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6, February 26, 2020 No. 2020-P-12/8-7, January 22, 2025 No. 2025-P-12/2-2-(NPA))

7. Procedure for Interaction of the Committee with the Board of Directors, Bank Management, Internal and External Auditor

7.1. The procedure for interaction of the Committee with the Board of Directors, Bank management, internal and external auditor, and for banks conducting operations in accordance with the principles of Islamic banking and finance, also with the Committee for the Management of Funds of Investment Account Holders, the authorized structural unit for internal Shariah audit (or authorized internal auditor), and the Shariah Council, must be determined by each Bank independently and in accordance with the regulatory legal acts of the National Bank.

(In the edition of the Resolutions of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6, September 12, 2025 No. 2025-P-12/46-1-(NPA))

7.2. The following points are important to highlight in this procedure:

• the accountability of the Committee to the Board of Directors and the necessity of the Committee providing recommendations, on the basis of which the Board of Directors issues orders mandatory for execution by the Bank;
• the interaction of the Committee with Bank management, internal and external auditor, and for banks conducting operations in accordance with the principles of Islamic banking and finance, also with the Committee for the Management of Funds of Investment Account Holders, the authorized structural unit for internal Shariah audit (or authorized internal auditor), and the Shariah Council, must be determined based on the rights and duties of the Committee.

(In the edition of the Resolutions of the Board of Directors of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/6, September 12, 2025 No. 2025-P-12/46-1-(NPA))

8. Report on Work Done

8.1. The Committee must regularly report on work done to the Board of Directors.

8.2. The frequency and detail of providing the Committee's report on work done for each Bank may vary. However, reports must contain a general brief description of the Committee's activities for the reporting period, the content of main recommendations, and information on their implementation or non-implementation.

9. Final Provisions

9.1. This document establishes only the fundamental requirements that the Committee must adhere to in carrying out its activities.

9.2. Other provisions necessary for regulating the Committee's activities may be reflected in the relevant internal regulatory document of the Bank.

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