• AU-1 AU-1 Auditor Requirements

    • AU-1.1 AU-1.1 Appointment of Auditors

      • AU-1.1.1

        Islamic bank licensees must obtain prior written approval from the BMA before appointing or re-appointing their auditors.

      • AU-1.1.2

        As the appointment of auditors normally takes place during the course of the firm's annual general meeting, Islamic bank licensees should notify the BMA of the proposed agenda for the annual general meeting in advance of it being circulated to shareholders. The BMA's approval of the proposed auditors does not limit in any way shareholders' rights to subsequently reject the Board's choice.

      • AU-1.1.3

        The BMA, in considering the proposed (re-)appointment of an auditor, takes into account the expertise, resources and reputation of the audit firm, relative to the size and complexity of the licensee. The BMA will also take into account the track record of the audit firm in auditing Islamic bank licensees within Bahrain; the degree to which it has generally demonstrated independence from management in its audits; and the extent to which it has identified and alerted relevant persons of significant matters. Finally, the BMA will also consider the audit firm's compliance with applicable laws and regulations (including legislative Decree No. 26 of 1996; the Ministry of Industry and Commerce's Ministerial Resolution No. 6 of 1998; and relevant Bahrain Stock Exchange regulations).

      • AU-1.1.4

        In the case of overseas Islamic bank licensees, the BMA will also take into account who act as the auditors of the parent firm. As a general rule, the BMA does not favour different parts of a banking firm or group having different auditors.

    • AU-1.2 AU-1.2 Removal or Resignation of Auditors

      • AU-1.2.1

        Islamic bank licensees must notify the BMA as soon as they intend to remove their auditors, with an explanation of their decision, or as soon as their auditors resign.

      • AU-1.2.2

        Islamic bank licensees must ensure that a replacement auditor is appointed (subject to BMA approval as per Section AU-1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

      • AU-1.2.3

        An auditor who resigns or is otherwise removed from the office of auditor must, within 30 days of the resignation or removal, write to the BMA setting out the reasons for the resignation or removal.

    • AU-1.3 AU-1.3 Audit Partner Rotation

      • AU-1.3.1

        Unless otherwise exempted by the BMA, Islamic bank licensees must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.

      • AU-1.3.2

        Islamic bank licensees must notify the BMA of any change in audit partner.

    • AU-1.4 AU-1.4 Auditor Independence

      • AU-1.4.1

        Before an Islamic bank licensee appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to carry out the audit properly, and is independent of the licensee.

      • AU-1.4.2

        For an auditor to be considered independent, it must, among things, comply with the restrictions in Section AU-1.5.

      • AU-1.4.3

        If an Islamic bank licensee becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the BMA of the fact.

      • AU-1.4.4

        If in the opinion of the BMA, independence has not been achieved within a reasonable timeframe, then the BMA may require the appointment of a new auditor.

    • AU-1.5 AU-1.5 Licensee/Auditor Restrictions

      • Financial Transactions with Auditors

        • AU-1.5.1

          Islamic bank licensees must not lend to their auditors, nor enter into any contracts of professional indemnity insurance with their auditors.

      • Outsourcing to Auditors

        • AU-1.5.2

          Section OM-2.7 generally prohibits Islamic bank licensees from outsourcing their internal audit function to the same firm that acts as their external auditors. However, the BMA may allow short-term outsourcing of internal audit operations to an Islamic bank licensee's external auditor, to meet unexpected urgent or short-term needs (for instance, on account of staff resignation or illness). Any such arrangement will normally be limited to a maximum period of one year and is subject to BMA prior approval.

      • Other Relationships

        • AU-1.5.3

          Islamic bank licensees and their auditors must comply with the restrictions contained in Article 217 (c) of the Commercial Companies Law (Legislative Decree No. (21) of 2001).

        • AU-1.5.4

          Article 217(c) prohibits an auditor from (i) being the chairman or a member of the Board of Directors of the company he/she audits; (ii) holding any managerial position in the company he/she audits; and (iii) acquiring any shares in the company he/she audits, or selling any such shares he/she may already own, during the period of his audit. Furthermore, the auditor must not be a relative (up to the second degree) of a person assuming management or accounting duties in the company.

        • AU-1.5.5

          The restriction in Paragraph AU-1.5.3 applies to overseas Islamic bank licensees as well as Bahraini Islamic bank licensees.

        • AU-1.5.6

          A partner, Director or manager on the engagement team of auditing an Islamic bank licensee may not serve on the Board or in a controlled function of the licensee, for two years following the end of their involvement in the audit, without prior authorisation of the BMA.

        • AU-1.5.7

          Chapter HC-2 sets out the BMA's "controlled functions" requirements.

      • Definition of "Auditor"

        • AU-1.5.8

          For the purposes of Section AU-1.5, "auditor" means the partners, Directors and managers on the engagement team responsible for the audit of the Islamic bank licensee.