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DECISION OF THE BOARD OF THE CENTRAL BANK OF THE REPUBLIC OF UZBEKISTAN

On Approval of the Regulation on the Procedure for Conducting Audit Inspections in Microcredit Organizations

Registered by the Ministry of Justice of the Republic of Uzbekistan on July 17, 2012, Registration No. 2379

(Enters into force on July 27, 2012)

In accordance with the Laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" (Information Bulletin of the Oliy Majlis of the Republic of Uzbekistan, 1995, No. 12, Article 247), "On Microcredit Organizations" (Collection of Legislation of the Republic of Uzbekistan, 2006, Nos. 37-38, Article 372), "On Audit Activity" (Information Bulletin of the Oliy Majlis of the Republic of Uzbekistan, 2000, Nos. 5-6, Article 149), and the Decision of the President of the Republic of Uzbekistan No. PQ-1438 of November 26, 2010 "On Priority Directions for Further Reforming and Increasing the Stability of the Republic's Financial and Banking System and Achieving High International Rating Indicators" (Collection of Legislation of the Republic of Uzbekistan, 2010, No. 48, Article 442), the Board of the Central Bank of the Republic of Uzbekistan decides:

1. Approve the Regulation on the Procedure for Conducting Audit Inspections in Microcredit Organizations in accordance with the Appendix.
2. This decision enters into force ten days after the day of its state registration by the Ministry of Justice of the Republic of Uzbekistan.

Chairman of the Central Bank
F. MULLAJONOV

Tashkent city,
June 23, 2012,
No. 19/4

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APPENDIX

DECISION OF THE BOARD OF THE CENTRAL BANK OF THE REPUBLIC OF UZBEKISTAN

No. 19/4 of June 23, 2012

REGULATION

On the Procedure for Conducting Audit Inspections in Microcredit Organizations

This Regulation establishes the procedure for auditing organizations to inspect the financial reports of microcredit organizations and related financial information, in accordance with the Laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" (Information Bulletin of the Oliy Majlis of the Republic of Uzbekistan, 1995, No. 12, Article 247), "On Accounting" (Information Bulletin of the Oliy Majlis of the Republic of Uzbekistan, 1996, No. 9, Article 142), "On Audit Activity" (Information Bulletin of the Oliy Majlis of the Republic of Uzbekistan, 2000, Nos. 5-6, Article 149), "On Microcredit Organizations" (Collection of Legislation of the Republic of Uzbekistan, 2006, Nos. 37-38, Article 372), and the Decision of the President of the Republic of Uzbekistan No. PQ-1438 of November 26, 2010 "On Priority Directions for Further Reforming and Increasing the Stability of the Republic's Financial and Banking System and Achieving High International Rating Indicators" (Collection of Legislation of the Republic of Uzbekistan, 2010, No. 48, Article 442).

Chapter I. General Provisions

1. The following main concepts are used in this Regulation:
   • audit organization — a legal entity holding a license to conduct audit activity, selected on a competitive basis;
   • audit inspection — the inspection by audit organizations of the financial report of a microcredit organization and related financial information to determine their accuracy and compliance with legislative acts, including normative acts of the Central Bank of the Republic of Uzbekistan (hereinafter referred to as the Central Bank);
   • audit report — a document sent to the head, owner, and general meeting of participants (shareholders) of the microcredit organization, containing detailed information on the course of the audit inspection, identified deviations from the established order of maintaining accounting, violations in the financial report, as well as other information obtained as a result of the audit inspection;

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• audit opinion — a document publicly available to users of the microcredit organization's financial report, expressing in written form the opinion of the audit organization regarding the accuracy of the financial report and the compliance of the accounting maintenance order with the requirements established by legislative acts.

2. The activities of microcredit organizations must be inspected annually by an audit organization at the end of the financial year.

3. When analyzing and evaluating the effectiveness of microcredit organization activities, audit organizations shall proceed primarily from profitability, capital utilization level, financial stability, solvency, self-financing level, and operational activity indicators.

4. An audit inspection may be conducted at the initiative of the microcredit organization initiating the audit inspection, its owner, as well as participants (shareholders) holding a share in the authorized capital not less than the amount specified by legislative acts, supervisory or law enforcement bodies.

5. It is not permitted to involve the same audit organization to repeatedly inspect the activities of the same microcredit organization on the exact same grounds.

6. An audit organization is not entitled to subject the activities of the same microcredit organization to audit inspection for more than three consecutive years.

Chapter II. Conditions and Requirements for Microcredit Organizations to Select Audit Organizations

7. Microcredit organizations select audit organizations on a competitive basis. The competition must consist of proposals from three audit organizations interested in conducting the audit inspection, and the audit organization participating in the competition must be unaware of the content of the proposals of other audit organizations.

8. Contracts and agreements concluded between the microcredit organization and the audit organization must not include rules restricting the submission of the audit opinion and report to the Central Bank.

Chapter III. Rights and Obligations of Microcredit Organizations and Audit Organizations in Conducting Audit Inspections

9. The microcredit organization undergoing audit inspection has the following rights:

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• to independently select the audit organization;
• to determine the direction and scope of the audit inspection when it is conducted at the initiative of the microcredit organization;
• to obtain necessary information from the audit organization regarding the legal norms on which the auditor's conclusions are based;
• to receive the audit report and audit opinion;
• to receive advice and recommendations from auditors on the order of maintaining accounting, preparing financial reports, and correcting identified shortcomings and violations.

10. The microcredit organization undergoing audit inspection:

• is obliged to create necessary conditions for the auditor to conduct the audit inspection and submit necessary documents within the timeframes specified in the contract on conducting the audit inspection;
• is obliged to eliminate violations of the rules for maintaining accounting, preparing financial reports, and calculating taxes and other mandatory payments identified during the audit inspection.

The microcredit organization may have other rights in accordance with legislative acts and may bear other obligations.

11. The microcredit organization is not entitled to commit actions (inaction) of any nature with the purpose of refusing to conduct the audit inspection carried out in accordance with this Regulation or hindering it.

12. After the completion of audit inspections, the microcredit organization must submit copies of the audit report and opinion, as well as the financial report of the microcredit organization certified as true by the audit organization, to the Central Bank.

13. Microcredit organizations must publish their annual financial report in the media by May 1 of the year following the end of the reporting year, after auditors have certified the accuracy of the data indicated in it.

14. The microcredit organization must timely pay for audit services in accordance with the contract on conducting the audit inspection.

15. Payment for work on conducting the audit inspection is carried out at the expense of the body that determined the audit inspection.

16. Audit organizations:

• must familiarize themselves in advance with the constituent documents, accounting, and financial reports of the microcredit organization to make a decision on conducting the audit inspection;
• must independently determine the forms and methods of conducting the audit inspection;

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- must fully familiarize themselves with documents related to the financial and economic activities of the microcredit organization during the audit inspection, as well as check the actual existence of any property or the actual status of any liabilities recorded in these documents;
- must obtain oral and written explanations from materially responsible persons of the microcredit organization regarding questions arising during the audit inspection, as well as additional information necessary for the audit inspection;
- must obtain written confirmations of information from third parties from the microcredit organization;
- have the right to refuse to conduct the audit inspection if the microcredit organization fails to provide all information necessary for the audit organization to prepare a reliable audit opinion;
- must involve auditors and other specialists in conducting the audit inspection in the established order;
- have the right to provide professional services other than organizing, restoring, maintaining accounting, and preparing financial reports to the microcredit organization during the period of conducting the audit inspection.

Audit organizations may also have other rights in accordance with legislative acts.

**17. Audit organizations:**
- must comply with the license requirements and conditions established by legislative acts in conducting audit activity;
- must provide information at the request of the microcredit organization regarding the requirements of legislative acts on conducting the audit inspection and the legal norms on which the auditor's opinions are based;
- must keep confidential the information obtained during the conduct of the audit inspection;
- must reflect in the audit report cases of violation of the legality of financial and economic operations and proposals for eliminating them;
- if the audit organization that audited the activities of the microcredit organization identifies facts confirming that the officials and other employees of the microcredit organization caused damage to the microcredit organization, it is obliged to inform the management, owner, and general meeting of founders of the microcredit organization about this and make the appropriate note in the audit report. In necessary cases, it must demand the convening of the general meeting of founders in the order established by legislative acts to inform about the results of the audit inspection.

Audit organizations may also bear other obligations in accordance with legislative acts.

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**Chapter IV. Independence and Impartiality of the Audit Organization in Conducting Audit Inspections**

**18. During the audit inspection, audit organizations:**
- must prepare proposals for improving the activities of microcredit organizations based on the results of the audit inspection;
- must make recommendations to the senior management body of the microcredit organization regarding the elimination of shortcomings identified during the audit inspection;
- must analyze the state of accounting and internal control, financial reports, credit portfolio analysis, the volume of reserves for given loans, risk and liquidity indicators of the microcredit organization, and assess its compliance with legislative acts, including normative acts of the Central Bank, during the audit inspection.

**19. Auditors of the audit organization must be independent of the microcredit organization, i.e., it is prohibited to conduct audit inspections in cases where the auditors are close relatives of the heads and (or) other officials of the microcredit organization being inspected, or persons having property or personal non-property interests in these organizations, as well as in other cases established by legislative acts.**

**Chapter V. Requirements for the Audit Report and Opinion**

**20. As a result of the audit inspection, the audit organization must submit an audit opinion and audit report prepared in accordance with legislative acts to the senior management body of the microcredit organization.**

**21. If the audit inspection is conducted by the audit organization at the request of the participants (shareholders) of the microcredit organization or supervisory and law enforcement bodies, the audit report must also be submitted to the person on whose request the audit inspection is conducted.**

**22. The annual financial report of the microcredit organization is an integral document of the audit opinion and must be attached to the opinion.**

**23. The following financial reports of the microcredit organization must be subject to audit inspection:**
- balance sheet report;
- report on financial results;
- consolidated report on changes in capital;
- main accounting policies and explanatory notes.

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**24. The audit report must include:**

a) a section on the results of checking the state of accounting and financial reporting, including:
   - an assessment of compliance with the established order of maintaining accounting and preparing financial reports;
   - a description of cases where established procedures for maintaining accounting reports and preparing financial reports were violated;

b) an assessment of the microcredit organization in carrying out financial and economic operations:
   - capital adequacy, as well as checking the timely and full formation of the authorized capital;
   - analysis of revenues and expenses, including an analysis of compliance with the requirements of tax legislation;
   - assessment of the credit portfolio;
   - assessment of the policy for creating, using, and writing off reserves to cover potential losses on assets;
   - information on risk management;
   - assessment of the internal control system;
   - information on the implementation of recommendations given regarding previously conducted audit inspections.

**25. All reports on conducted inspections must include a final section certifying the assessment of the activities of the executive body of the microcredit organization, a complete list of documents confirming recommended corrections, identified shortcomings, and recommendations for eliminating violations of legislative requirements.**

**26. Each page of the audit report must be signed by the auditor(s) who conducted the audit inspection.**

**27. Reports must be submitted directly to the senior management body of the microcredit organization for review and subsequent approval. Copies of the reports must be given to the executive body of the microcredit organization for execution after approval.**

**Chapter VI. Final Provisions**

**28. Disputes arising in the course of conducting audit activity are resolved in the order established by legislative acts.**

**29. Information in the audit report is considered confidential and cannot be disclosed. Users of this information are held liable in accordance with legislative acts for disclosing the information.**

**30. The senior management body of the microcredit organization is responsible for preparing the annual financial report and involving an audit organization for this purpose.**

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**31. Audit organizations that have subjected the activities of a microcredit organization to audit inspection are liable for damage caused to the microcredit organization and other users of financial reports as a result of forming an audit opinion containing incorrect conclusions about the financial report and other financial information of the microcredit organization.**

**32. Damage caused to the microcredit organization and (or) the customer of the audit inspection, including lost profits, as a result of poor-quality or insufficiently conducted audit inspection, must be compensated by the audit organization in the order established by legislative acts.**

**33. Persons guilty of violating the requirements of this Regulation are held liable in accordance with legislative acts.**

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