Instruction No. 2022-04/IMF Regarding Statutory Auditors of Microfinance Institutions

CENTRAL BANK OF DJIBOUTI

INSTRUCTION NO. 2022-04/IMF REGARDING STATUTORY AUDITORS OF MICROFINANCE INSTITUTIONS

The Governor of the Central Bank of Djibouti,

Having regard to Law No. 118/AN/11/6th L of January 22, 2011 amending the statutes of the Central Bank of Djibouti;

Having regard to Law No. 179/AN/07/5th L of May 16, 2007 regulating microfinance activities on the territory of the Republic of Djibouti;

Having regard to Law No. 117/AN/11/6th L of May 25, 2011 regulating financial cooperatives;

Having regard to the Commercial Code, Book 3 on Company Law;

Having regard to Law No. 119/AN/11/6th L of January 22, 2011 on the establishment and supervision of credit institutions and financial auxiliaries;

Having regard to Decree No. 2018-171/PRE of May 8, 2018 appointing the Governor of the Central Bank of Djibouti.

Decrees:

Article 1: MFIs are required to submit to the Central Bank of Djibouti applications for the approval of the statutory auditor(s) they propose to appoint to certify their annual accounts, as provided for in Article 31 of the aforementioned Law No. 179/AN/07/5th L. Applications for the approval of statutory auditors must reach the Central Bank of Djibouti no later than two months before the date of the general meeting responsible for their appointment.

Article 2: Statutory auditors of microfinance institutions must appear on the list of approved statutory auditors maintained by the Djibouti Order of Chartered Accountants (OECD). The statutory auditor must provide a certified copy of their registration with the Order of Chartered Accountants of the Republic of Djibouti. They must attest to full compliance with all current regulations regarding incompatibilities and conflicts of interest.

Article 3: Applications must be accompanied by the information to be included in the documents attached to this instruction: a declaratory statement to be completed by the institution, a sworn declaration to be prepared by the statutory auditor (natural person or responsible signatory of the mission, in case of appointment of a statutory audit firm), and the curriculum vitae(s) (CV) of the individuals called upon to intervene in the context of certification missions.

Article 4: Statutory auditors must demonstrate proven moral qualities and professional and technical competencies.

Article 5: The Central Bank of Djibouti has a period of two months, which may be extended in case of requests for additional information, to issue its opinion on the proposed appointment of the statutory auditor.

Article 6: The decision of approval or, if applicable, refusal, duly reasoned, shall be notified to the institution no later than twenty-one (21) days from the date of receipt of all required documents and information. A copy shall be communicated to the statutory auditors concerned.

Article 7: The statutory audit mission must meet the requirements of the professional rules governing the statutory audit profession.

Instruction No. 2022-06/IMF sets out the Central Bank's specific requirements regarding the important aspects of the external audit mission.

In any event, the statutory auditor's report must include a comment covering in particular the following aspects:

• Analysis of the evolution of balance sheet, off-balance sheet, and income statement items;
• Asset quality;
• Adequacy of resources to uses;
• Liquidity and solvency;
• Risk control and, generally, compliance with legal and regulatory provisions;
• Opinion on the accounts;
• Operation of internal control;
• Operation of governing bodies;
• Information and management system.

Article 8: Statutory auditors are obligated to provide the Central Bank with any information requested by it concerning the microfinance institutions under their verification.

Statutory auditors are obligated to promptly inform the Central Bank of any act violating regulations that threatens the continuity of operations or leads to difficulties in certifying the accounts.

Article 9: Statutory auditors must transmit their mission reports to MFIs to the Central Bank within six (6) months after the end of the fiscal year.

Article 10: A statutory auditor may not perform the same function for more than six (6) consecutive years with the same microfinance institution.

Article 11: Any institution that decides to revoke the mandate of a statutory auditor must first notify this duly reasoned decision to the Central Bank of Djibouti, which may hear the auditor concerned.

Article 12: Statutory auditors of microfinance institutions exercise their control in accordance with standards generally accepted by the profession. The Central Bank may suspend or withdraw the approval of a statutory auditor who no longer meets the approval conditions, fails to comply with the requirements of this instruction, or tolerates a microfinance institution providing inaccurate information about its financial situation. These measures may be applied without prejudice to other disciplinary or criminal proceedings.

Article 13: Reports produced by the statutory auditor must be sent to the Central Bank of Djibouti no later than two (2) weeks before the general meeting, and no later than June 30 for the final detailed reports.

Article 14: This instruction enters into force as of its signature.

Done in Djibouti, March 14, 2022

The Governor

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ANNEX TO INSTRUCTION NO. 2022-04/IMF REGARDING STATUTORY AUDITORS OF MICROFINANCE INSTITUTIONS

General Aspects

1. Objective of the External Audit The objective is to enable the statutory auditor to express a professional opinion on the financial situation of the audited microfinance institution, as well as on the funds received and expenses incurred for the fiscal year ending December 31 of each year.

2. Scope of Work

• The statutory audit work must be conducted in compliance with international auditing standards and must include the tests and controls that the statutory auditor deems necessary according to the circumstances.
• The statutory auditor must pay particular attention to major accounting balances, notably credit portfolios and provisions for non-performing loans, cash and cash equivalents, and financing balances.
• If applicable, the statutory auditor must visit a representative number of branches or agencies each year.

3. Financial Statements and Other Information Financial statements are certified by the statutory auditor and include:

• The balance sheet;
• The income statement;
• The statement of changes in equity;
• The cash flow statement;
• The accompanying notes and explanatory notes.

Financial statements are prepared in accordance with the accounting framework for microfinance institutions in Djibouti. Although the accuracy of the information primarily rests with the management of each institution, the examination and opinion of the statutory auditor cover all information requested in this document, whether it appears in the financial statements or in the accompanying notes.

4. Audit Opinion The statutory auditor must express an opinion on the financial statements of the microfinance institution, in accordance with International Standards on Auditing (ISA).

5. Management Letter In addition to the financial statements and audit opinion, the statutory auditor must prepare a management letter for the management of the microfinance institution. This letter contains:

• A comment on the accounting records, systems, and controls examined during the audit, including cash management and recording systems, compliance with credit policies and procedures, provisions for non-performing loans, and recording of deposits and liabilities.
• A comment on the information and management system, if applicable, at the branch or agency level.
• Improvement recommendations when weaknesses have been identified in the above systems and controls.
• A comment on any other issues identified during the work that could affect the continuation of activities or that the statutory auditor considers relevant.

Financial Aspects

1. Information on Prior Fiscal Years Financial statements must include financial information from the prior fiscal year and the current fiscal year. If the financial statements of the prior fiscal year were not audited, the statutory auditor must pay particular attention to opening balances and mention this in their report.

2. Information on the Credit Portfolio Financial statements must include information on non-performing loans, written-off loans, and provisions for non-performing loans. Provisions must be established in compliance with current regulations in the sector in the Republic of Djibouti.

All loans not complying with prudential standards must be mentioned in the annex to the statutory auditor's report. These may include loans to members, staff, or management of the MFI.

The statutory auditor must comment on the reliability of the information, on late loan repayments, and on the compliance of credit activities with the procedures and policies established by the microfinance institution.

3. Grants Financial statements must provide information enabling the identification of the grant's origin. When the grant is in kind, an estimate of the cost or market value must be made.

4. Liabilities When loans have interest rates below market rates, the statutory auditor must request details to determine the fair cost of funds.

Organizational and Institutional Aspects

1. Internal Control Tests on internal control procedures performed by the statutory auditor must be subject to a detailed description. The results obtained must also be explicitly mentioned.

The statutory auditor must give their opinion on the most important internal control procedures, including administrative and accounting procedures, budgetary control, internal audit, and information system management. Weaknesses identified during the assessment must be reported, even if they have not resulted in material errors.

2. Recovery Plan When the microfinance institution is subject to a recovery plan, the statutory auditor must comment on the progress made in executing the recovery plan.

3. Communication The statutory auditor must exercise diligence in performing their work. They must transmit their report as soon as possible to the Governor of the Central Bank, but no later than June 30.

If the statutory auditor discovers irregularities, misconduct, fraud, or any violation of legal and regulatory provisions during their work, they must immediately notify the Central Bank as well as the Board of Directors and, if applicable, the audit committee or supervisory board of the microfinance institution.

The statutory auditor must present the results of their work to the Board of Directors and, if applicable, to the audit committee or supervisory board.

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APPLICATION FOR APPROVAL FOR THE APPOINTMENT OF STATUTORY AUDITORS Document No. 1: Declaratory Statement to be Completed by the Institution

A – Identity of the Declaring Institution

Denomination
Bank Code
Legal Form
Total Balance Sheet as of December 31 of the Last Fiscal Year

NB: if the total social balance sheet of the entity exceeds 50 billion DJF, or if the Central Bank of Djibouti has expressly requested it, two statutory auditors must be appointed.

B – Details on the Mandate(s) Concerned

Proposed Date for the Appointment of the Statutory Auditor(s)¹
Expiration Date of the Last Fiscal Year Audited by the Statutory Auditor(s) Whose Approval is Requested
Annual Forecast Budget for Each Statutory Auditor Whose Appointment is Proposed (in DJF and number of hours)²:
- Lead Auditor 1:<br>- Lead Auditor 2:

The signatory confirms that the institution they represent has verified the experience of the proposed auditor(s) and that, to their knowledge, there is no element that could call into question their independence from the declaring institution. They commit to informing the CBD of any element they become aware of subsequently that could call into question the independence of the statutory auditor(s).

(Date and signature of a responsible executive)

¹ Date of the general meeting to vote on the proposed appointment ² Indicative amount based on information known at the date of submission of the approval application

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C – Civil Status of the Statutory Auditors Whose Approval is Sought

SA 1	If a natural person:<br>- Full Name:	Reason for Application
	If a company:<br>- Company Name:<br>- Certified Copy of Statutes<br>- Full Name of Mission Manager ³:<br>- Network (if applicable)	- Establishment creation or approval<br>- New appointment<br>- Appointment of a second statutory auditor<br>- Mandate renewal<br>- Planned change of mission manager<br>- Other cases: (specify the reason, if applicable, in a separate letter)
SA 2	If a natural person:<br>- Full Name:
	If a company:<br>- Company Name:<br>- Full Name of Mission Manager:<br>- Network (if applicable)

³ This refers to the signing partner designated as responsible for the mission.

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Document No. 2: Sworn Declaration to be Prepared by the Statutory Auditor (Natural Person or Responsible Mission Manager in Case of Appointment of a Statutory Audit Firm) and Submitted to the Central Bank of Djibouti by the Institution

(Date and Place)

I, the undersigned: Full Name: _________________________________________________ Professional Address: __________________________________________________________ Telephone: __________________________ Fax: ________________________________ Email Address: ____________________________________________________________

(If applicable) Belonging, in the capacity of ________________________, to the statutory audit firm ________________________________ (name, address, and RC No.), which is itself part of the network ________________ (specify name) or a member of the professional association (…) ________________.

Proposed for: my appointment / my renewal In the capacity of: statutory auditor (natural person) / mission manager on behalf of the aforementioned statutory audit firm For (company name of the institution considering the appointment): __________________

Confirms being registered on the list provided for in Law No. 053/AN/19/8th L of July 4, 2019 regarding the exercise of the Chartered Accountant profession and the functioning of the Order of Chartered Accountants of Djibouti (OECD).

I confirm having carried out the necessary due diligence to assess whether accepting the contemplated certification mission would not place me in a position to affect compliance with the fundamental principles of conduct for statutory auditors, in accordance with current laws and regulations as well as international professional practice principles, and notably to harm the principles of impartiality, independence, prevention of conflicts of interest, and competence necessary for the exercise of my mission. (If applicable, specify in a separate letter the identified risk situations and the safeguard measures put in place).

In particular, I confirm for myself and, (if applicable), for the company on whose behalf I would perform the aforementioned missions:

• Possess the necessary integrity to accept the contemplated mandate, and notably not be subject to a disciplinary or judicial sanction that would prevent me from accepting it;

• Possess an organization and a level of competence and human and material resources adapted to the size and nature of the institution considered as well as the scope of my mission;

• Not have any situation or financial, personal, or professional link with the institution considering my appointment that could compromise my independence or be perceived as calling into question the impartiality of my certification mission, and having ensured that the members of the statutory audit team do not have, with respect to the concerned institution, personal, financial, or professional links incompatible with the statutory audit mission.

I commit to informing the Central Bank of Djibouti of any development likely to give rise to or reveal situations that could call into question the content of this declaration during my mission.

Signature

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Document No. 3: Professional Experience (CV)

A detailed, dated, and signed CV of the statutory auditor whose approval is sought must be submitted:

• On the occasion of the first proposed appointment in an institution under the supervision of the Central Bank of Djibouti following the publication of this Instruction,

• Subsequently, on the occasion of each appointment in a subject institution.

It is additionally accompanied by the CV(s) of each collaborator likely to participate in the mission, and if applicable, a supplementary explanatory note.

Finally, the table below is completed, for both mission managers and their collaborators, with all elements that may be useful in assessing the level of experience relative to the nature of the contemplated mandate (statutory audit missions, audit, accounting expertise, consulting, training attended and delivered, etc.).

Summary of Statutory Audit Missions
Names of Credit Institutions Already Audited / Currently Under Audit	Mandate exercised as a natural person (NP) or representative of a statutory audit firm (RF).	Specify if you were the mission manager (MM); otherwise, mention the nature of the work performed.	Period

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