# **Section 5: External Auditing Requirements**

Section 5 of the survey contains 19 questions, about half of which are also found in the 2007 survey. The main change observed in the data since the previous survey is an increase in the percentage of countries that require that the auditor’s report on each bank be publicly disclosed (Table A5). This percentage rose from 75 to 87 percent among all countries.<sup>10</sup> Another significant change has been the increase in the powers of the supervisor vis _-_ à _-_ vis the auditor in EMDEs. The percentage of countries where the supervisor has the power to take actions against the auditor increased from 59 to 76 percent.<sup>11</sup> Furthermore, the share of EMDEs where the supervisor has taken legal actions against the auditor rose from 10 to 42 percent.<sup>12</sup>

**Table A5. External Auditing Requirements:** **<u>Selected Responses</u>**

||**ALL**|**ADV**|**EMDEs**|
|---|---|---|---|
|**A. Overview**|**% Yes**|**% Yes**|**% Yes**|
|Is an audit by a professional external auditor required for all<br>commercial banks inyourjurisdiction?|100<br>(99)|100<br>(97)|100<br>(100)|
|Are specific requirements for the extent or nature of the audit spelled<br>out?|85<br>(84)|70<br>(78)|91<br>(87)|
|Does the banking supervisor have the right to meet with the external<br>auditors and discuss their report without the approval of the bank?|93<br>(91)|92<br>(92)|93<br>(90)|
|Is the audit report on the financial statements of a bank required to be<br>publicly disclosed together with these financial statements?|87<br>(75)|95<br>(71)|84<br>(76)|
|Are auditors required to promptly inform banking supervisors when<br>they identify information that could affect the safety and soundness of a<br>bank?|90<br>(86)|100<br>(86)|86<br>(85)|
|In cases where the supervisor identifies that the bank has received an<br>inadequate audit, does the supervisor have the powers to take actions<br>against the external auditor?|70<br>(60)|57<br>(61)|76<br>(59)|
|Has legal action been taken against an auditor in the last 5 years?|40<br>(14)|35<br>(22)|42<br>(10)|
|In cases where the supervisor identifies that the bank has received an<br>inadequate audit, does the supervisor have the powers to take actions<br>against the bank?|91|89|91|
|Do supervisors delegate part of their supervisory tasks to external<br>auditors?|42|41|43|
|Do regulations explicitly prohibit auditing firms from providing non-<br>audit services to the banks whose financial accounts they audit?|55|31|65|
|Are external auditors subject to independent oversight by:<br>Ministry of Finance or other government department?|24|22|25|
|Specialized public entity (e.g. independent audit regulator)?|42|51|39|
|Bankingsupervisoryagency?|23|11|28|

Source: Calculations based on the 2011–12 Bank Regulation and Supervision Survey, which reflects values as of 2010. Values in parentheses refer to the 2007 Bank Regulation and Supervision Survey, which captures data as of 2005. ADV: advanced economies, EMDEs: emerging and developing economies (Table 1 provides the complete list of countries).

> 10 If we focus on the sample of countries that responded to both the 2007 and 2011–12 survey (i.e., the “matched” sample) the increase is smaller from 82 to 88 percent.

> 11 Note that in the “matched” sample, the increase is smaller from 68 to 73 percent.

> 12 Once again, in the “matched” sample, the increase is smaller from 11 to 27 percent.

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