SG-4 SG-4 Internal Shari'a Audit
SG-4.1 SG-4.1 Principle
SG-4.1.1
Bahraini Islamic bank licensees must have an internal Shari'a audit function reporting to the SSB and administratively to the CEO. The function must be adequately resourced with proficient staff having the relevant qualification and experience.Amended: October 2018
August 2017Policy and Procedures
SG-4.1.2
The internal Shari'a audit function must be governed by a policy and procedures manual prepared by the management in consultation by SSB. The policy must be approved by the board of directors while the procedures must be approved by
senior management .Amended: January 2020
August 2017SG-4.1.3
For purposes of Paragraph SG-4.1.2, the policy and procedures manual must include, but is not limited to, the statement of purpose, authority and responsibility. The policy and procedures manual must make clear that the internal Shari'a audit staff have no executive authority or responsibility for the activities they audit.
August 2017Head of Internal Shari'a Audit Function
SG-4.1.4
The head of internal Shari'a audit function must be a full time employee of the
Bahraini Islamic bank licensee and must be responsible for examining and evaluating the extent of the Islamic bank licensee's compliance with the following:(a) Shari'a principles;(b) The SSB's Fatawa, guidelines, pronouncements and instructions/recommendations;(c) Shari'a related regulations, resolutions and directives issued by the CBB;(d) Shari'a standards issued by AAOIFI; and(e) Shari'a related policies and procedures of theBahraini Islamic bank licensee .August 2017SG-4.1.5
The head of internal Shari'a audit function must express his opinion on the extent of Shari'a compliance of the
Bahraini Islamic bank licensee's operations through an actual audit of the business transactions.August 2017SG-4.1.6
The head of internal Shari'a audit function must be appointed by the management subject to the approval of the SSB in consultation with the Audit Committee and the approval of the CBB (refer to Chapter LR-1A).
August 2017SG-4.1.7
Bahraini Islamic bank licensees must immediately notify the CBB when the head of internal Shari'a audit function, for whatever reason, ceases to hold the position (i.e. has resigned, been suspended or dismissed). In case of suspension or dismissal,the notification must include the reasons for the action taken (See Chapter LR-1A).August 2017SG-4.2 SG-4.2 Roles and Responsibilities of the Head of Internal Shari'a Audit Function
SG-4.2.1
The head of internal Shari'a audit function must review and examine the adequacy and effectiveness of the
Bahraini Islamic bank licensee's Shari'a compliance system. This must cover all aspects of theBahraini Islamic bank licensee's business operations and activities in order to assess the extent of Shari'a compliance requirements as stated under Paragraph SG-4.1.4.August 2017SG-4.2.2
The head of internal Shari'a audit function must have direct and regular communications with all levels of management, SSB, Audit Committee, Shari'a Officer and IESCA. No scope limitation and/or restriction of access to documents, reports, etc. must be placed on internal Shari'a audit staff.
August 2017SG-4.2.3
Internal Shari'a audit staff must be objective and maintain independent attitude in performing their internal Shari'a audit. They must reach objective conclusions based on work performed and the results thereof.
August 2017Internal Shari'a Audit Report
SG-4.2.4
The head of internal Shari'a audit function must prepare periodic reports to the SSB, based on the audit plan, for consideration and appropriate action. A copy of such reports must also be presented to the Audit Committee and the CEO.
August 2017SG-4.2.5
For purposes of Paragraph SG-4.2.4, the report presented by the head of internal Shari'a audit function to the Audit Committee should also include a summary of the SSB's response to the points highlighted in the report.
August 2017SG-4.2.6
The head of internal Shari'a audit function must follow up to ascertain that appropriate action is taken on his reported findings and recommended corrective actions. In addition, any other recommendations relating to Shari'a matters made by the SSB, the IESCAs and the CBB must be followed up.
August 2017SG-4.2.7
Any difference of opinion between the management and the head of internal Shari'a audit function on matters relating to Shari'a interpretation must be referred to and decided by the SSB.
August 2017Shari'a Audit Plan
SG-4.2.8
The head of internal Shari'a audit function must have an internal hari'a audit plan in place which must be approved by the SSB on an annual basis.
August 2017SG-4.2.9
For purposes of Paragraph SG-4.2.8, the internal Shari'a audit planning process must include, but not be limited to, the following:
(a) Developing an internal Shari'a audit program;(b) Obtaining background information about the activities to be audited, such as locations, products/services, branches, divisions, etc.;(c) Establishing internal Shari'a audit objectives and scope of work;(d) Obtaining SSB fatawa, guidelines, instructions, prior year internal and independent external Shari'a compliance audit results, relevant correspondence including with the CBB;(e) Determining the resources necessary to perform internal Shari'a audit;(f) Communicating with all the individuals at theBahraini Islamic bank licensee who need to know about internal Shari'a audit;(g) Performing, as appropriate, a survey to become familiar with activities, risks and controls to identify areas of internal Shari'a audit emphasis, and to invite comments and suggestions; and(h) Establishing a risk-based Shari'a audit plan.August 2017
