Circular No. 10/M/18 on the Approval and Exercise of Statutory Auditors for Microfinance Institutions and Financial Bodies

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BANQUE DE LA REPUBLIQUE DU BURUNDI THE DIRECTION

Circular No. 10/M/18 on the Approval and Exercise of Statutory Auditors for Microfinance Institutions and Financial Bodies, issued pursuant to Regulation No. 001/2018 on Microfinance Activities

Article 1: Purpose and Scope

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

Article 2: Required Professional Qualifications

The statutory auditor or members of the audit team performing the audit work must hold at least a bachelor's degree (licence) or equivalent in accounting and finance, management, economics, or an equivalent qualification, accompanied by three (03) years of experience in statutory audit or accounting/financial auditing.

Article 3: Required Documents for Approval as a Statutory Auditor

Before assuming office, statutory auditors of microfinance institutions and financial bodies must be approved by the Central Bank.

In addition to the disqualifications listed in Article 13 of the Regulation governing microfinance activities, the following documents and information are required for approval as a statutory auditor (natural person):

• a certified true copy of the diploma;
• a copy of the National Identity Card or Passport;
• a detailed Curriculum Vitae;
• an original extract of the criminal record dated less than three (03) months ago;
• the original approval certificate from the Order of Chartered Accountants as a financial reviewer (Table A);
• a certificate of non-bankruptcy issued by the competent authority, dated less than three (03) months ago;
• the draft contract agreed upon with the microfinance institution;

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• the Minutes of the Board of Directors and the General Assembly, which respectively proposed and approved the appointment of the statutory auditor;
• technical references regarding audit work already performed;
• a signed declaration by the statutory auditor confirming independence from the management, shareholders, and directors of the microfinance institution who hold individually or collectively a participation equal to or greater than five percent (05%);
• a document confirming that the statutory auditor has no engagement with the audited microfinance institution;
• a document confirming that the statutory auditor does not hold any other function than that of Statutory Auditor with an enterprise in which the audited institution, its shareholders, management, or directors hold individually or collectively a participation equal to or greater than five percent (05%), or if the enterprise where they work is a qualified shareholder in the establishment;
• any other information deemed useful by the Central Bank during the application review.

For legal entities established as accounting or audit firms, the following documents and information are required for approval as a statutory auditor:

• a copy of the articles of association;
• a list of partners and management;
• the curricula vitae of the management;
• a list of persons designated as statutory auditors;
• the approval certificate from the Order of Chartered Accountants;
• a certificate of non-bankruptcy issued by the competent authority, dated less than three (03) months ago;
• a signed declaration by the firm's representative confirming that the firm does not hold qualified shareholder status vis-à-vis the audited microfinance institution;
• any other information deemed useful by the Central Bank during the application review.

The persons designated by the accounting or audit firm must meet the conditions mentioned in the second paragraph of this article.

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

Article 4: Extent of Statutory Auditor's Work

The statutory audit work must meet professional standards.

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The annex to this circular provides the Central Bank's specific requirements regarding audit aspects.

Article 5: Duty to Notify/Alert

Statutory auditors are obligated to promptly notify the Central Bank upon discovering, during their mission, any event:

• likely to significantly influence the financial situation of the microfinance institution regarding its administrative and accounting organization as well as internal control;
• likely to jeopardize the going concern status of the microfinance institution;
• likely to result in a refusal or qualified opinion regarding financial statement certification;
• potentially leading to a violation of laws and regulations that could seriously affect the liability of the institution or its management.

Article 6: Deadline for Submitting the Statutory Auditor's Report

The statutory auditor must submit to the Governor of the Central Bank, no later than March 31 of the following fiscal year, a financial verification report covering the entire accounting period for the previous year, accompanied by explanatory notes.

Article 7: Duration of Mandate

The term of office for a statutory auditor is limited to two (02) years. A statutory auditor may not serve more than two (02) successive terms with the same microfinance institution or financial body. The request for renewal of a statutory auditor's term must be submitted to the Central Bank for prior authorization at least three (03) calendar months before the end of their term.

A statutory auditor cannot resume the same functions within a microfinance institution they audited for a period of four (04) years following the end of their last term.

Article 8: Sanctions

Statutory auditors exercise their control according to generally accepted professional standards.

In case of non-compliance, the Central Bank may apply the following sanctions without prejudice to other disciplinary or legal proceedings:

• warning;

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• prohibition on continuing audit operations with the microfinance institution;
• prohibition from serving as statutory auditors for microfinance institutions for a minimum of three (03) accounting periods;
• permanent prohibition from exercising this role in microfinance institutions, credit institutions, payment establishments, and exchange offices.

Article 9: Suspension or Revocation of Approval

• The Central Bank may suspend or revoke the approval of a statutory auditor who no longer meets their approval conditions, fails to comply with legal and regulatory requirements, or allows a microfinance institution to provide inaccurate information regarding its financial situation.

Article 10: Entry into Force

This circular replaces Circular No. 04/M/10 on the approval of statutory auditors for microfinance institutions dated May 4, 2010, and enters into force on the day of its publication in the Official Gazette of Burundi and on the website of the Banque de la République du Burundi.

Done in Bujumbura, on 20/8/2018

BANQUE DE LA REPUBLIQUE DU BURUNDI

Annonciata SENDAZIRASA 2nd Vice-Governor.-

[Seal: BANQUE DE LA REPUBLIQUE DU BURUNDI - DIRECTION]

Melchior WAGARA 1st Vice-Governor.-

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BANQUE DE LA REPUBLIQUE DU BURUNDI THE DIRECTION

Annex to Circular No. 10/M./18 on the Approval and Exercise of Statutory Auditors for Microfinance Institutions and Financial Bodies, issued pursuant to Regulation No. 001/2018 on Microfinance Activities

I. General Aspects

1. Objective of Statutory Audit

Statutory auditors are required to issue a professional opinion on the accounting status of a microfinance institution, providing a true and fair view of the period's results, financial position, and equity for the fiscal year ending December 31 each year.

They ensure, in particular, compliance with regulatory provisions regarding the accounting and provisioning of non-performing loans (NPLs) and doubtful commitments by signature.

2. Scope of Work

The statutory audit work must be conducted in accordance with international audit standards and must include the tests and controls deemed necessary by the Statutory Auditor based on circumstances.

The statutory auditor must pay particular attention to major accounting balances, notably credit portfolios and provisions for non-performing loans, cash accounts and equivalents, and financing balances.

If applicable, the statutory auditor must visit a representative number of branches or agencies each year.

In any case, the statutory audit report must highlight comments regarding 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;

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• guarantees related to commitments;
• risk segmentation, and generally, compliance with legal and regulatory provisions.

3. Financial Statements and Other Information

The 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;
• accompanying statements and explanatory notes.

The explanatory notes of the accounting statements must be sufficiently detailed to allow users to understand their scope.

The financial statements are prepared in accordance with the accounting framework for microfinance institutions of Burundi.

Although the accuracy of information primarily lies with each institution's management, the statutory auditor's review and opinion cover all requested information, whether appearing in the financial statements or their accompanying annexes.

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).

When formulating their opinion, the statutory auditor declares that, in their view, the financial information has been prepared, or not, in all material respects, in accordance with current regulations.

In all cases, the statutory auditor issues either:

• an unqualified favorable opinion;
• a qualified favorable opinion;
• an adverse opinion;
• an inability to express an opinion.

Unqualified favorable opinion: The statutory auditor issues a favorable, unqualified opinion when the audit procedures implemented provide reasonable assurance that the financial information, taken as a whole, does not contain material misstatements.

Qualified favorable opinion: The statutory auditor issues a qualified favorable opinion due to disagreement when they have identified material misstatements during the audit that have not been corrected, or when their impact on financial information reveals clearly circumscribed material misstatements, and the qualification is sufficient to allow users of the financial information to base their judgment knowingly.

The statutory auditor specifies in this case the reasons for the qualification due to disagreement. They quantify, as best as possible, the impact of identified and uncorrected material misstatements, or indicate the reasons why they cannot be quantified.

Adverse opinion: The statutory auditor issues an adverse opinion when they have detected material misstatements during the audit that have not been corrected, and either their impact on financial information reveals material misstatements that cannot be clearly circumscribed, or the formulation of a qualification is insufficient to allow users of financial information to base their judgment knowingly.

Inability to express an opinion: The statutory auditor expresses inability to form an opinion when they have not been able to implement all necessary audit procedures to support their opinion, and either the impact of work limitations on financial information cannot be clearly circumscribed, or the formulation of a qualification is insufficient to allow users of financial information to base their judgment knowingly.

The statutory auditor also expresses inability to form an opinion when multiple uncertainties exist whose impact on financial information cannot be clearly circumscribed.

5. Management Letter

In addition to the financial statements and audit opinion, the statutory auditor must prepare a management letter for the microfinance institution's management.

This letter contains:

• a comment on the functioning of governing bodies (General Assembly, Board of Directors, Supervisory Council, and Management Committee);
• a comment on internal control functioning and the formulation of improvement recommendations when weaknesses are identified;
• a comment on compliance with legal and regulatory provisions in general, and prudential regulations in particular;
• 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,

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provisioning for non-performing loans, and recording of deposits and liabilities;

• a comment on the information and management system, if applicable, at branch or agency levels;
• a comment on any other identified issues during the work that could affect the continuation of activities or that the statutory auditor considers relevant.

II. Financial Aspects

1. Prior Period Information

The financial statements must include financial information from the prior fiscal year and the current fiscal year. If the prior year's financial statements have not been audited, the statutory auditor must pay particular attention to opening balances and mention it in their report.

2. Credit Portfolio Information

The statutory auditor must ensure that the quality of the credit portfolio (notably the accounting and provisioning of non-performing loans) as well as commitments by signature comply with Central Bank regulatory provisions. Tests must be performed on the monitoring of overdue loans.

Credits not complying with prudential standards must be mentioned in the Statutory Auditor's report.

3. Subsidies

The statutory auditor's report must provide information to identify the origin of the subsidy. When the subsidy is in kind, an estimate of the cost or market value must be performed.

4. Debts

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

The statutory auditor must ensure that funds received as refinancing from Burundese financial institutions, within the framework of financing priority sectors and value chains encouraged by the Government, are differentiated from those originating from other national and international partners.

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III. 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 evaluation 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 submit their report to the Governor of the Central Bank no later than March 31 each year.

If the statutory auditor discovers irregularities, malpractices, 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, where applicable, the Audit Committee or Supervisory Council of the microfinance institution.

The statutory auditor must present the results of their work to the Board of Directors and, where applicable, to the Audit Committee or Supervisory Council.

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