Amendments and Additions to the Regulation on Requirements for Internal Audit of Commercial Banks by the Central Bank

Resolution of the Board of the Central Bank of the Republic of Uzbekistan, registered on April 20, 2004, registration number 992-1

Date of Entry into Force

April 30, 2004

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Document lost force on August 8, 2021

[OKOS:

1.07.00.00.00 Legislation on Finance and Credit. Bank Activity / 07.19.00.00 Banking System / 07.19.02.00 Commercial Banks. Private Banks. Foreign Banks;

2.21.00.00.00 Comprehensive documents for amendments and additions / 21.04.00.00 Departmental normative legal documents]

[TSZ:

Finance / Banks and other credit institutions. Credits]

Board of the Central Bank of the Republic of Uzbekistan

Resolution

on amendments and additions to the Regulation on Requirements for Internal Audit of Commercial Banks by the Central Bank

[Registered by the Ministry of Justice of the Republic of Uzbekistan on April 20, 2004, registration number 992-1]

This Resolution loses its force on August 8, 2021, based on Resolution No. 3/2 of the Board of the Central Bank of the Republic of Uzbekistan dated April 16, 2021, "On Approval of the Regulation on Requirements for Internal Audit of Commercial Banks" (registration number 3302, dated May 7, 2021).

Based on Articles 3, 7, 17, and 51 of the Law of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan," to align the internal control system in commercial banks with the recommendations of the Basel Committee and international audit standards, and to further improve requirements for internal control, the Board of the Central Bank decides:

Amendments and additions shall be made to the Regulation "On Requirements for Internal Audit of Commercial Banks by the Central Bank" (registered with the Ministry of Justice on December 22, 2000, under number 992), and its new edition shall be approved in accordance with the Appendix.

This Resolution shall enter into force ten days after its state registration by the Ministry of Justice of the Republic of Uzbekistan.

Chairman of the Central Bank F. MULLAJONOV

Tashkent city,

March 13, 2004,

No. 6/12

Board of the Central Bank of the Republic of Uzbekistan

March 13, 2004,
No. 6/12

"APPROVED"

Regulation

on Requirements for Internal Audit of Commercial Banks by the Central Bank

(New Edition)

This Regulation was developed in accordance with the laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan", "On Banks and Banking Activity", "On Audit Activity", "On Accounting" and other legislative acts, and establishes the requirements for organizing internal audit in commercial banks by the Central Bank.

General Provisions
Internal audit is an independent examination established on a continuous basis within the bank to review and assess bank activities with the aim of assisting bank employees in performing their duties effectively. The main objective of internal audit is to assist the Bank Council and Management in achieving the objectives of bank activity by providing the Bank Council and Management with objective analysis, assessment, recommendations, and information on the control and results of bank activity through the Internal Audit Service.
Internal Audit Service (hereinafter referred to as "Audit Service") is an independent structural unit that conducts (audits) and monitors the state of internal control in the bank, including the efficiency of financial and economic activities, reliability and accuracy of accounting, completeness and objectivity of reports, compliance with legislative acts of the banking legislation of the Republic of Uzbekistan, founding and internal documents, and rules and procedures for conducting bank operations, and also advises the Bank Council on improving the efficiency and reliability of bank operations.
Each bank must organize an Internal Audit Service, as well as develop and implement the "Regulation on the Internal Audit Service," "Procedure and Process of Conducting Internal Audit," and "Job Description of the Chief Internal Auditor," approved by the Bank Council.
Audit Committee
To organize and support the internal control system, the Bank Council must establish an Audit Committee, and this committee must consist exclusively of members of the Bank Council.
The Chairman and members of the Audit Committee are approved by the Bank Council based on the recommendation of the Chairman of the Bank Council. The composition of the Audit Committee must include at least three members of the Bank Council. Members of the Bank Council included in the composition of the Audit Committee must not be appointed as members of other Council committees responsible for bank activities.
Members of the Audit Committee must have higher education and sufficient work experience to organize the tasks and activities of the audit service. At least one member of the Audit Committee must have qualifications in preparing financial reports and must be a specialist in accounting or audit.
The main tasks of the Audit Committee include:

reviewing Audit Service reports submitted after each internal audit inspection;

reviewing quarterly reports on internal audit and submitting them to the Bank Council;

providing practical assistance to the Bank Council in developing technical assignments for external auditors;

providing practical assistance to the Bank Council in evaluating external auditor proposals and preparing recommendations for selecting external auditors;

coordinating with the Chairman of the Bank Management on managing the implementation of recommendations from the Internal Audit Service and external auditors;

reviewing external auditor reports, including letters sent to management, and submitting them to the Bank Council;

eliminating problems and deficiencies identified during external and internal audit inspections, as well as monitoring the implementation of recommendations given by auditors by the Bank Management;

ensuring the independence of the Audit Service activities and preventing interference by Management members and other heads of bank departments in its activities, as well as the content and scope of inspections.

Objectives, Tasks, and Functions of the Audit Service
The Bank Audit Service is established to assist the Bank Management bodies in ensuring the effective operation of the bank by conducting internal control monitoring and providing the bank management with objective analysis, assessment, recommendations, and information on the control and results of bank activity.
The following tasks are assigned to the Audit Service:

providing the Bank Council with reliable and independent information on the actual state of the bank and the effectiveness of the internal control system based on the results of conducted internal audit inspections;

analyzing and assessing the effectiveness and adequacy of the internal control system and the effectiveness of procedures adopted for conducting internal audit;

monitoring the effectiveness of administrative and operational processes in achieving the goals set for bank activity;

monitoring the effectiveness and applicability of risk management processes and risk assessment methodologies;

monitoring the financial information system, as well as electronic information systems and electronic banking services;

monitoring the orderliness, accuracy, and reliability of accounting records and financial reports;

monitoring the capital assessment system related to assessing the bank's capital risk;

conducting special inspections or providing practical assistance in conducting them based on the requirements of the Bank Council.

The Audit Service also performs the following functions:

operating together with bank management;

assisting bank employees in performing their duties effectively;

conducting current audit inspections of financial reports (monthly, quarterly, annual);

inspecting operations or programs to determine whether their results correspond to the goals and tasks set for them and are executed as planned;

assessing the adequacy of accounting, operational, and administrative control systems;

preparing bank activity for external audit.

In addition, the Audit Service:

participates in developing internal regulations, instructions, procedures, and other documents;

cooperates with similar services of commercial banks and other organizations in the Republic of Uzbekistan for the purpose of advanced training and experience sharing;

assists and supports external auditors by exchanging information;

helps in implementing practical control at reasonable costs;

summarizes inspection materials and submits information on inspection results to the Audit Committee and bank management, and makes proposals to the Audit Committee and bank management on measures to eliminate identified deficiencies.

The Audit Service conducts its activities based on the legislative acts of the Republic of Uzbekistan.
The number of Audit Service employees must be sufficient to effectively resolve internal audit tasks and achieve its objectives.
The Audit Service must inform the Bank Council about cases of violations identified during inspections.
Management of the Audit Service
The Audit Service is managed by the Chief Internal Auditor (hereinafter referred to as "Chief Auditor"), who holds the status of a bank department (main directorate) head.
The main tasks of the Chief Auditor include:

Developing and executing an audit program mandatory for Audit Service employees, written internal audit policy, and procedures. The Chief Auditor is responsible for the compliance of specified documents with internal audit standards;

Ensuring the execution of written work of the Audit Service activities carried out by Audit Service employees;

Selecting qualified and sufficiently informed employees for the Audit Service and establishing direct control over their work activities;

Ensuring the continuous improvement of employee qualification levels;

Working together with the Bank Council and Management, including regularly reporting to the Bank Council or Audit Committee on the execution of tasks set for internal audit activities and the work of the internal audit system. Specifically, the Audit Service must regularly inform the Bank Council and Audit Committee about the execution of the Audit Inspection Plan;

Reporting to the Audit Committee quarterly on the results of Audit Service activities;

Coordinating the work of internal auditors;

Assisting the external auditor;

Other matters according to the job description.

The Chief Auditor is responsible for evaluating measures taken to timely eliminate violations identified during audit inspections.
The Bank Council must listen to the quarterly reports of the Chief Auditor.
Independence of the Audit Service
The Audit Service is independent and reports directly to the Bank Council or its Audit Committee.
All Audit Service employees appointed in regional branches of the bank must report directly to the Chief Auditor.
Audit Service employees must be independent of the activities being inspected by them.
Any pressure on the Chief Auditor or Audit Service employees must be immediately reported to the Chairman of the Bank Council.
The Chief Auditor is appointed and dismissed from his service duties based on a decision of the Bank Council. Audit Service employees are approved by the Audit Committee based on the proposal of the Chief Auditor.
To ensure the independence of the Audit Service, the salaries of Audit Service employees are determined by the Bank Council. The Chief Auditor must annually develop an annual budget estimate for the Audit Service and submit it to the Bank Council for approval. The Bank Council has the right to make exceptional changes to the Audit Service budget estimate. Additionally, additional material incentives for Audit Service employees may be provided according to the decision of the Bank Council.
Powers and Responsibilities of Audit Service Employees
Audit Service employees have the following powers during the inspection process:

Request all necessary documents related to bank activity or documents that are the subject of the audit from bank management and employees;

Obtain explanations from bank managers and employees regarding questions arising during internal audit inspections. Audit Service employees have the right to obtain written explanations if necessary;

Obtain copies of necessary documents;

Obtain original copies of documents suspected of being withheld in the future in the established manner if necessary;

Access all buildings of the bank, as well as electronic and paper archives, for the purpose of inspection;

Monitor the implementation of measures to eliminate violations identified during the inspection process after the audit inspection is completed.

Audit Service employees are responsible for:

Distorting inspection results;

Failing to ensure the confidentiality of any information constituting bank secrets in accordance with legislative acts;

Failing to ensure and return the integrity of documents obtained from the relevant departments of the bank.

Internal Audit Service employees are responsible in accordance with the current legislation of the Republic of Uzbekistan and the internal regulations of the bank establishing the responsibility of internal auditors.
Requirements for Audit Service Employees
Audit Service employees (auditors) must meet the following requirements:

Have higher education corresponding to the nature of their duties;

Have at least three years of work experience in departments related to money circulation, credit, currency, deposit operations, or accounting and reporting of commercial banks. The Chief Auditor must have at least three years of work experience in a managerial position in the above-mentioned departments of a commercial bank or at least two years of work experience in the Audit Service;

Have knowledge in the field of banking legislation, including knowledge of normative acts of the Central Bank;

Have knowledge of applying the rules of republican accounting and generally accepted international accounting and audit standards, as well as regularly attending special courses in accordance with changes in international standards;

Pass the certification conducted by the Central Bank of the Republic of Uzbekistan.

The Bank Council and Audit Committee, together with the Chief Auditor, must continuously assess the professional competence of each employee of the Audit Service, taking into account their level of professional skill in selecting information, conducting inspections, and evaluating and preparing conclusions. In this regard, it must be taken into account that bank activities are becoming more complex as a result of the development of the financial sector and that the tasks to be performed by the Audit Service are increasing.
The professional skills of Audit Service employees must be improved through regular and continuous training. Audit Service employees must have the opportunity to receive assistance in obtaining necessary knowledge and skills for conducting audits in the context of computerization of the banking sector from relevant banks.
Main Requirements for Conducting Internal Audit
Internal audit inspections are conducted only by Audit Service employees.
Internal audit is conducted in accordance with the Audit Inspection Plan approved by the Bank Council. A detailed audit program is prepared based on the Audit Inspection Plan. Responsibility for developing the Audit Inspection Plan lies with the Audit Committee, and responsibility for developing and executing the audit program lies with the Chief Auditor of the bank.
To ensure the effectiveness and adequacy of the Audit Service's work, the Audit Inspection Plan must be reviewed and approved by the Bank Council at least once a year, by January 1 of the relevant year.
The audit program must clearly define and explain the purpose of the audit inspection, as well as include a detailed work plan, schedule for conducting the audit inspection, and explanations of necessary procedures for each area being addressed.
The scope of the program must be sufficient to achieve audit objectives. Each program must clearly and concisely explain the required work and may cover the activities of one or more departments depending on the nature and complexity of operations. Procedures included in the program may be modified depending on the volume and complexity of operations or other factors being implemented.
Internal audit in commercial banks must be conducted at least once a year.
The periodicity of conducting internal audit inspections must be based on assessing the level of risk associated with each area where audit must be conducted (Audit Service employees must consider factors such as the nature of bank operations, bank assets and liabilities, the existence of relevant internal control policies and standards, and the effectiveness of management and internal control when determining the level of operational risk).
The volume of internal audit must include checking and assessing the adequacy and effectiveness of the bank's internal control system and the quality of work in fulfilling assigned obligations.
The Audit Service must check the reliability and accuracy of financial reports in accordance with current legislative acts.
During the conduct of internal audit inspections, compliance with rules, plans, procedures, and legislative acts that may have a significant impact on bank operations and reports must be checked, as well as the degree of compliance with them by the bank.
The Audit Service must answer questions regarding the assessment of the level of capital adequacy, classification of assets, risk management and liquidity assessment, and the timely, complete, and accurate reflection of conducted bank operations in accounting and financial reports.
The Audit Service must check the methods of storing assets and, if necessary, their existence. In addition, the Audit Service must inspect operations or programs to determine whether the results correspond to the set goals and tasks and whether operations and programs are executed according to plan.
The results of the internal audit inspection must include an inspection report and a complete set of supporting work documents. Audit inspection work documents are prepared by Audit Service employees and reviewed by the heads of the Audit Service departments. These documents must record the information obtained and analysis conducted, as well as include grounds for situations identified during the audit inspection and recommendations for their improvement.

Audit Service employees are responsible for protecting confidential information known to them or obtained in the course of performing their duties. In cases where bank secrets and confidential information are disclosed to third parties or to bank managers whose disclosure is prohibited, measures established by legislation are taken against them.

Audit Report
The audit report must be prepared immediately after the audit inspection is completed.
The audit report must include at least the audit objectives and objects, the scope of internal audit, identified problems and deficiencies, and clear recommendations for each problematic area.
Recommendations consist of a brief explanation of identified problems and must reflect the measures required to eliminate them, the persons personally responsible for implementing these measures, and the deadlines for implementing the measures.
Audit Service reports must be submitted directly to the Bank Council or Audit Committee and approved by the Bank Council. Copies of these reports are submitted to the Bank Management and heads of separate structural units of the bank (the part directly related to the respective department).

The Bank Council must monitor the bank audit service through the following methods:

Regularly reviewing the results of monitoring the activities of the commercial bank's branches at Bank Council meetings;

Evaluating the effectiveness of the Audit Service's work based on the quality of assets, credit and investment portfolios, and other indicators of bank activity.

Bank and branch management must take necessary measures to eliminate deficiencies identified in the conducted audit inspection. In this regard, a schedule of measures to eliminate these deficiencies is drawn up.
Major deficiencies and suggestions identified by Audit Service employees must be explained in writing by the management of the department being inspected. If necessary, these explanations may be included in the report before being submitted to the Bank Council and Audit Committee.
The Audit Service must develop measures to ensure the correction of identified deficiencies and the implementation of audit recommendations.
The Audit Service must establish post-inspection monitoring to ensure the timely and appropriate implementation of measures to eliminate violations identified during the inspection process. Responsibility for conducting post-inspection monitoring must be defined in the written regulations of the Audit Service.
Interaction of the Audit Service with the Central Bank and External Bank Auditors
To ensure regular monitoring and avoid repetition of work, the Audit Service must ensure operational relations with the Central Bank and the bank's external auditor and coordinate its work.
The Audit Service must periodically consult with the Central Bank on certain types of risks and measures taken to eliminate them, as well as with the bank's external auditor on cooperation levels.
The bank must submit copies of internal audit reports approved by the Bank Council to the Central Bank quarterly, as well as a summary report on bank audits conducted at the end of the calendar year, including information on:

Checking and assessing the adequacy and effectiveness of the internal control system;

Analysis of the applicability and effectiveness of risk management processes and risk assessment methodologies;

Analysis of management and financial information systems, as well as electronic information systems and bank electronic services;

Analysis of the accuracy and reliability of accounting records and financial reports (including published);

Analysis of the bank system regarding capital assessment relative to risk;

Internal control procedures, for example, testing operations in the field of conflicts of interest and operational systems;

Compliance with legislative and normative document requirements, ethical rules, and implementation of rules and procedures;

Checking the completeness, reliability, and timeliness of report preparation in accordance with republican legislative acts;

Conducting special inspections (for example, in the field of combating money laundering and terrorist financing).

The Central Bank has the right to obtain other information related to audits conducted by the bank's Audit Service when necessary.

(Collecton of Legislation of the Republic of Uzbekistan, 2000, No. 16, Article 192; 2011, No. 17, Article 176)

Amendments and Additions to the Regulation on Requirements for Internal Audit of Commercial Banks by the Central Bank

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