Resolution No. 741-2001: Approves the External Audit Regulations for Savings and Credit Cooperatives Not Authorized to Operate with Public Funds

Lima, October 5, 2001
SBS Resolution
No. 741-2001
The Superintendent of Banking and Insurance

CONSIDERING:

That, numeral 3 of the Twenty-Fourth Final and Complementary Provision of the General Law of the Financial System and of the Insurance System and Organic Law of the Superintendence of Banking and Insurance - Law No. 26702 and its modifying norms, hereinafter General Law, establishes that the supervision of savings and credit cooperatives not authorized to operate with third parties is the responsibility of the National Federation of Savings and Credit Cooperatives (FENACREP) or other cooperative federations to which they voluntarily affiliate and that are recognized by this Superintendence;

That, numeral 6 of the Final and Complementary Provision of the General Law indicates that this Superintendence supervises and controls the aforementioned cooperative federations, regulates the operations of said cooperatives, and is empowered to dispose of the adoption of necessary measures to correct patrimonial or administrative deficiencies detected;

That, external audit work constitutes support for the more efficient administration of cooperatives, as well as for the supervision and control that the respective Federation must perform;

That, it is necessary to update the norms issued by this Superintendence regarding external audit work in the aforementioned cooperatives, so that the corresponding General Assemblies and Surveillance Councils adequately fulfill the powers regarding external audits established in articles 27 and 31 of the Single Consolidated Text of the General Law of Cooperatives approved by Supreme Decree No. 074-90-TR;

That, as stated in literal a) of article 62 of the Regulations for Savings and Credit Cooperatives not authorized to operate with public funds approved by SBS Resolution No. 540-99, FENACREP has presented a normative proposal on the matter;

Being in accordance with the opinion of the Adjunct Superintendencies of Banking and Legal Advice; and,

In exercise of the powers conferred by numerals 7 and 9 of article 349, as well as the Twenty-Fourth Final and Complementary Provision of the General Law;

RESOLVES:

Article First.- Approve the External Audit Regulations for savings and credit cooperatives not authorized to operate with public funds, which forms an integral part of this Resolution.

Article Second.- This Resolution enters into force from the external audits corresponding to the year 2001, from which exercise Circular No. COOP-038-94 of January 21, 1994, is rendered without effect.

Register, communicate, and publish;

LUIS CORTAVARRIA CHECKLEY
Superintendent of Banking and Insurance

EXTERNAL AUDIT REGULATIONS FOR SAVINGS AND CREDIT COOPERATIVES NOT AUTHORIZED TO OPERATE WITH PUBLIC FUNDS

CHAPTER I
GENERAL PROVISIONS

Scope

Article 1.- The provisions of these Regulations are applicable to savings and credit cooperatives not authorized to operate with public money and, where pertinent, to central savings and credit cooperatives.

Definitions

Article 2.- For the application of these Regulations, the following definitions shall be considered:

a) Days: Calendar days. b) Executives: The members of the Board of Directors and the Surveillance Council. c) Federation: National Federation of Savings and Credit Cooperatives of Peru (FENACREP) or another Federation recognized by the Superintendence. d) Significant events: Those that expose or could potentially expose the cooperative to risks that could impact its solvency and liquidity, such that there is a possibility of affecting the fulfillment of obligations with its members. e) Identification and management of risks: Determination, measurement, monitoring, and control of the risks assumed by the cooperative. f) General Law of Cooperatives: Single Consolidated Text of the General Law of Cooperatives (D.S. No. 074-90-TR) and its modifications. g) Internal control system: Set of policies, procedures, and control techniques established by the cooperative to achieve adequate administrative organization, operational efficiency, reliability of reports, appropriate identification and management of risks faced, and compliance with legal provisions applicable to it. h) Information system: Set of policies and procedures established by the cooperative for the adequate generation of the flow of valid and reliable information necessary for internal decision-making and the provision of information to third parties and competent authorities. It includes the computer systems used for recording and generating the flow of information. i) Audit firms: External audit firms. j) Superintendence: Superintendence of Banking and Insurance.

CHAPTER II
RESPONSIBILITIES OF THE COOPERATIVES

Obligation to hire audit firms

Article 3.- Cooperatives that during the first semester of each fiscal year have total assets exceeding the equivalent of six hundred Tax Units (600 UIT) shall hire audit firms in accordance with the provisions of these Regulations.

Hiring of audit firms

Article 4.- Cooperatives shall hire audit firms in accordance with what is established in these Regulations, no later than August 31 of each year.

Cooperatives must call upon external audit firms and communicate to the Federation the audit firms that have presented themselves, attaching the corresponding current registration and authorization certificate in the respective registry. The Federation, within twenty (20) days of receiving said communication, taking into account the background of the quality of the audit reports of previous years of said firms, if applicable, shall make the observations it deems pertinent; otherwise, it shall be considered that there are no objections. The Surveillance Council shall propose the shortlist of hireable audit firms that it has preselected to the Board of Directors in accordance with the procedures indicated in the General Law of Cooperatives.

A copy of the contract signed between the cooperative and the audit firm must be sent to the Federation within ten (10) days following its signing. The documentation supporting compliance with the hiring requirements referred to in the following article must be available to the Federation.

Requirements for hiring

Article 5.- Cooperatives may only hire the services of audit firms that meet the following requirements, which shall also be applicable, where pertinent, to the partners of said firms:

a) Be registered and authorized in the Registry of one of the Departments' Public Accountants Colleges of the Republic and in the Registry of External Audit Firms of the Superintendence1 b) Have the experience, infrastructure, and adequate human and technical resources for the volume and complexity of the operations performed by the cooperative;

c) Not have been subject to observation by the Federation; d) Not have been sanctioned by any body for unsatisfactory work; e) Not have a single-risk linkage according to the regulations issued by this Superintendence, with the executives, managers, or main officials of the audited cooperative, nor be a partner of the cooperative; and, f) Others indicated by this Superintendence at the request of the Federation.

Content of contracts

Article 6.- Contracts signed with audit firms must contain the following minimum aspects:

a) The start of external audit examinations must be carried out no later than sixty (60) days before the closing of the corresponding fiscal year; b) Scope of the examination and minimum content of the audit firms' reports, in accordance with the provisions of these Regulations and other complementary norms issued by this Superintendence; c) Declaration by the audit firm, its partners, and each member of the team that will audit the cooperative, of knowing and accepting the obligations and responsibilities established by current regulations regarding the performance of external audit, the confidentiality of obtained information, and the rotation requirements established in article 10 of these Regulations; d) Deadline for delivery of reports; e) Obligation of the audit firm to make available to the Federation the working papers and other supporting documentation of the reports it issues and, if applicable, substantiate the respective report, upon simple request of the Federation; f) Obligation of the audit firm to send to the Federation, simultaneously with its presentation to the Board of Directors and Surveillance Council of the audited cooperative, a copy of the reports issued in compliance with these Regulations; g) Penalty clause that financially sanctions the delay in the presentation of reports, with respect to the deadlines established by current regulations, the amount of which will be deducted from the firm's fees; h) List of all members of the audit team, specifying those hired on a temporary and/or permanent basis, indicating their experience, professional level, time auditing the cooperative, and the responsibilities of each of them; i) Commitment by the audit firm not to replace the partner, manager, or senior auditor in charge of the audit without the authorization of the cooperative; and, j) Participation in working meetings, as appropriate, with the Federation, the Board of Directors, and/or the Surveillance Council of the cooperative.

Responsibility of the cooperative in external audit examinations

Article 7.- The Board of Directors and management are directly responsible for providing the hired audit firm with the information and facilities necessary for it to perform its work adequately, independently, and timely.

Likewise, it is the responsibility of said bodies to ensure compliance with the provisions established in these Regulations and to form a file containing the background and responses to information requests made by the audit firm.

Knowledge of reports by the cooperative

Article 8.- The Board of Directors must take knowledge of all reports from the audit firm and dispose of the adoption of necessary corrective measures.

The receipt and taking of knowledge by the Board of Directors of the reports from the audit firms must be recorded in the respective Minutes Book. Likewise, the opinion on the financial statements must be known by the General Assembly of members, together with the annual report of the cooperative.

Simultaneously with the presentation to the Board of Directors, the audit firm must also present to the Surveillance Council the reports referred to in the previous paragraphs.

Information to the Federation

Article 9.- Cooperatives must bring the following information to the knowledge of the Federation within ten (10) days of its occurrence:

a) Non-compliance with the contractual obligations of the audit firms, as well as, if applicable, the resolution of contracts entered into with the audit firms, due to non-compliance by said firms; and, b) The application of the penalty indicated in literal g) of article 6 of these Regulations.

Likewise, the contracting cooperatives must inform the Federation, previously and documented, about the reasons motivating the change of external audit firm after the respective contract has been signed.

In the aforementioned cases and when the Federation deems it pertinent, it may summon the representatives of the audit firm.

CHAPTER III
RESPONSIBILITIES OF THE AUDIT FIRMS

Requirement for rotation of the partner and the audit team

Article 10.- The audit firm, under its responsibility, has the obligation to rotate the partner responsible for issuing the opinion and all members of the team after three (3) years of having performed audit work in the same cooperative. Once the aforementioned maximum period has concluded, a period of at least two (2) years must elapse for any of said persons to be able to audit the cooperative again.

For the purposes indicated in the previous paragraph, the three (3) year period is cumulative, even if the members of the audit team have been part of another audit firm.

Examinations applicable to cooperatives

Article 11.- Audit firms must evaluate the reasonableness of the financial statements and the integral functioning of the internal control system.

If audit firms identify problems that do not allow the examinations to be carried out adequately, they must communicate this immediately to the Federation and indicate in the respective reports the reasons that prevented such evaluation.

Opinion on financial statements

Article 12.- The opinion on the financial statements must contain the audit firm's opinion regarding the reasonableness of the content of said statements in all aspects, in accordance with the provisions issued by this Superintendence and, in case of situations not foreseen in said norms, by what is established in the International Accounting Standards (IAS) officialized by the Accounting Standards Council.

If there are qualifications to the opinion, they must be clearly identified and, when applicable, quantified within it.

Notes to the financial statements

Article 13.- Audit firms must verify that cooperatives comply with disclosing in the "Notes to the financial statements" information whose disclosure is required by norms issued by this Superintendence and by the International Accounting Standards (IAS).

Report on the internal control system

Article 14.- The report on the internal control system must consider, at least, the following:

a) Evaluation of the compliance and effectiveness of the internal control system, which must record the detail of deficiencies found, analysis of their origin, and suggestions to overcome them; b) Evaluation of policies and procedures for the identification and management of risks, in accordance with the provisions established by this Superintendence; c) Evaluation of the cooperative's information systems, which includes, among others, the flow of information at the internal levels of the cooperative for its adequate management, and the selective review of the validity of the data contained in the supplementary information to the financial statements (annexes and reports) that cooperatives present to the Federation, according to current regulations on the matter; d) Evaluation of the security mechanisms and existence of contingency plans by the cooperative to face risk situations that imply loss of information or damage to the computerized equipment used, as well as other assets; and, e) Degree of compliance with observations formulated by the Federation and by the corresponding audit firms for the last fiscal years.

Supplementary reports

Article 15.- Audit firms must evaluate the following aspects:

1. Evaluation and classification of debtors in accordance with what is provided in current regulations based on a representative sample of the credit portfolio, which must comprise at least fifty percent (50%) of the total portfolio amount.

The report must contain the result of the evaluation of the following aspects:

a) Classification of debtors by categories, indicating those that have observations or discrepancies with the cooperative's classification and that signify a deficit of provisions or non-compliance with legal limits, in which case the name or trade name of the debtor receiving the financing, types of financing granted and their amount, and the nature of the observation and/or classification discrepancy must be indicated; b) Compliance with the constitution of provisions required by legal provisions; c) Refinancing of credits, classification, and sufficiency of their provisions in accordance with the norms issued by this Superintendence, recording those credits with periodic refinancings or that deserve observations; d) Policies and procedures for granting, monitoring, recovery, and write-off of credits; e) Procedures adopted for adjudicated assets and those received in payment of debts; f) Situation of guarantees received and the suitability of valuations made to the guarantees, indicating the selected sample, for debtors other than those classified as normal;

2. Evaluation of the compliance with global and individual limits:

a) Verification of the compliance with the cooperative's operational limits, both global and individual; b) Risk weighting of assets and contingent credits performed by the cooperative, in accordance with norms on the matter; and, c) Authorized investments.

3. Evaluation of the investment portfolio, which will be carried out based on a sample that will comprise at least fifty percent (50%) of the total portfolio amount, and will incorporate at least the following aspects:

a) Verification of the valuation of investments; b) Verification of adequate accounting recording; c) Compliance with the constitution of the provision for value fluctuation; d) Compliance with the investment policy and policies and procedures regarding the management of market risks incurred by the cooperative; and, e) Concentration of investments in economic groups and in sectors or economic activities.

Deadlines for submission of reports

Article 16.- The deadline for submission of the report on the evaluation of the cooperative's internal control system is December 20 of the year corresponding to the audited fiscal year.

The deadline for submission of the opinion on the financial statements, as well as the supplementary reports indicated in article 15 of these Regulations, is the last business day of February of the year following the audited fiscal year.

Information on significant events

Article 17.- Audit firms have the obligation to communicate in writing to the Federation within three (3) days of becoming aware, the significant events they detect in the audit process of cooperatives, without prejudice to their communication to the competent bodies of the cooperative and including them in the corresponding reports.

Responsibility of audit firms

Article 18.- Audit firms assume full responsibility for the reports they issue that do not appropriately reveal situations demonstrating the lack of solvency, patrimonial insufficiency, and/or acute financial or economic weakness of the audited cooperative, as of the date of the examination.

Supplementary application of international audit standards

Article 19.- The examinations that audit firms perform in accordance with what is provided in these Regulations will be carried out applying the provisions indicated by this Superintendence or, in its absence, by what is established in the Generally Accepted Auditing Standards (GAAS) and the International Standards on Auditing (ISA).

Conservation of documents supporting the opinion and reports

Article 20.- Audit firms must conserve the documentation supporting the reports issued, resulting from the examinations performed on cooperatives, for a period of up to ten (10) years following the audited fiscal year.

CHAPTER IV
RESPONSIBILITIES OF THE FEDERATION

Powers of the Federation

Article 21.- The Federation may dispose of the hiring of a different audit firm or expand the scope of the audit performed, when:

a) The results of the audit examinations performed do not comply with what is provided in these Regulations, or are not satisfactory in the opinion of the Federation; and/or, b) It is required to carry out complementary examinations to those established in these Regulations.

Likewise, the Federation may require, in cases it deems convenient, the performance of external audits on cooperatives that are below the level of total assets indicated in article 3 of these Regulations.

FINAL PROVISIONS

Deadline to calculate the rotation requirement

First.- The deadline to determine the rotation requirement referred to in article 10 of these Regulations shall be calculated from the date of entry into force of these Regulations.

Annual report

Second.- The annual report prepared by the cooperative must contain the opinion of the external auditors on the financial statements corresponding to the examined fiscal year and the notes regarding them.

TRANSITIONAL PROVISION

Hiring for the 2001 fiscal year

Sole.- The hiring of audit firms for the 2001 fiscal year may be carried out until October 31, 2001. Contracts entered into prior to the entry into force of this norm must be adapted to it no later than October 31, 2001.

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1 Literal modified by SBS Resolution No. 17025-2010, published on 15-12-2010.