If necessary, regulators may consider limiting the scope of non-auditing services or requiring the auditors to submit a request for approval prior to engaging in non-auditing activities in the same entity that they provide auditing service. One good example is the Sarbanes Oxeley Act, which was issued in the U.S. in 2002 disallowing audit firms from providing specifc functions to their audit clients such as bookkeeping, financial information system design and appraisal service, etc. Second, the work of the auditors should never replace supervisory responsibilities. Audited financial statements are not prepared to serve supervisory purposes and external auditors are not trained as bank supervisors. Accounting policies and definitions used by auditors may be different from those required by supervisors under Thai regulatory standards, although in general they tend to be the same. For example, there are differences between supervisory guidelines and accounting requirements on asset classification and provisioning. Whereas the supervisory guidelines prescribe minimum specific ratios of loan provisions depending on the quality of loans, the accounting standard is less specifc and only requires banks to set aside appropriate provisions. Second, the method used by regulators to set aside provisions is based on an “expected loss model”, while the accounting standards require provisions based on an “incurred loss model”. These conceptual differences can lead to different outcomes on such critical issues as the volume of classified asset, the adequacy of provisions, and therefore, capital adequacy. It’s useful to be mindful of these differences and understand the context that leads to the need to maintain these differences.

In this regard, the Bank of Thailand meets with external auditors at the beginning of each year, in order to exchange views on common areas of concerns and to gain greater insights on the planned audit scope for the coming year, for example, the quality of risk management, the reliability of assigned collateral and foreclosure values. In addition to ongoing meetings with external auditors, there are periodic discussions at the agency level between the Bank of Thailand and the accountancy bodies. Regularly, the Bank of Thailand seeks comments from the Institute of Certifed Accountants and Auditors of Thailand prior to the issuance of new regulations. Likewise, the Bank of Thailand’s supervisors are regularly invited to be a member of the auditing standard committee whose responsibilities involve the development and improvement of Thai auditing standards. In summary, the Bank of Thailand has signifcantly benefited from the increasing coordination between supervisors and external auditors. Despite these benefts, there are several challenges ahead in our relationship with external auditors that merits careful deliberation. First, supervisors should be sensitive to the independence of the external auditors, particularly when the auditors provide various types of consulting services to the bank, which often times may be far more lucrative than external auditing fees. In Thailand, the Ministry of Commerce released a ministerial regulation in 1991 to prohibit external auditors from providing auditing services to any entities where their independence cannot be maintained. However, this regulation still leaves the assessment of independence to the external auditors themselves.