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Location: Central Bank of Bahrain Volume 5—Specialised Licensees > Common Modules (Applicable to all Specialised Licensees) > Part A > High Level Standards > AA Auditors and Accounting Standards
  • AA Auditors and Accounting Standards

    • AA-A Introduction

      • AA-A.1 Purpose

        • Executive Summary

          • AA-A.1.1

            This Module presents requirements that have to be met by specialised licenseesG with respect to the appointment of external auditors. This Module also sets out certain obligations that external auditors have to comply with, as a condition of their appointment by specialised licenseesG .

            October 2010

          • AA-A.1.2

            This Module is issued under the powers given to the Central Bank of Bahrain ('CBB') under Decree No. (64) of 2006 with respect to promulgating the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). It supplements Article 61 of the CBB Law, which requires licenseesG to appoint an external auditor acceptable to the CBB.

            October 2010

        • Legal Basis

          • AA-A.1.3

            This Module contains the CBB's Directive (as amended from time to time) relating to auditors and accounting standards used by specialised licenseesG , and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all specialised licenseesG (where applicable).

            Amended: January 2011
            October 2010

          • AA-A.1.4

            For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

            October 2010

      • AA-A.2 Module History

        • Evolution of Module

          • AA-A.2.1

            This Module was first issued in October 2010. Any material changes that are subsequently made to this Module are annotated with the calendar quarter date in which the change is made; Chapter UG-3 provides further details on Rulebook maintenance and version control.

            October 2010

          • AA-A.2.2

            A list of recent changes made to this Module is provided below:

            Module Ref. Change Date Description of Changes
            AA-A.1.3 01/2011 Clarified legal basis.
            AA-3.1.1 07/2011 Excluded money changers and administrators from Paragraph AA-3.1.1.
            AA-5 04/2012 Chapter amended and content moved to Section BR-3.5 for money changers and administrators (or Module GR for rep offices) and retitled as Role of External Auditor as Appointed Expert.
            AA-1.3.2 10/2012 Guidance Paragraph deleted as five year period varies depending on type of specialised licensee and when license was granted.
            AA-1.5.4 and AA-1.5.5 10/2012 Clarified guidance by indicating what Law is being referred to.
            AA-3.3 10/2012 Section deleted as report can now also be completed by approved consultancy from as per Section FC-4.3.
            AA-3.2.2 and AA-3.2.3 04/2014 Added specific auditor reports applicable to financing companies.
            AA-3.1 10/2016 Deleted Section on Review of QPR

    • AA-B Scope of Application

      • AA-B.1 Specialised Licensees

        • AA-B.1.1

          The contents of this Module – unless otherwise stated – apply to all specialised licenseesG . Representative Offices are exempted from this Module.

          October 2010

        • AA-B.1.2

          The contents of this Module apply to both Bahraini specialised licenseesG and overseas specialised licenseesG .

          October 2010

      • AA-B.2 Auditors

        • AA-B.2.1

          Certain requirements in this Module indirectly extend to auditors, by virtue of their appointment by specialised licenseesG . Auditors appointed by specialised licenseesG must be independent (cf. Sections AA-1.4 and AA-1.5). Auditors who resign or are otherwise removed from office are required to inform the CBB in writing of the reasons for the termination of their appointment (cf. Sections AA-1.2). Other requirements are contained in Sections AA-1.3 (Audit partner rotation) and AA-3.1 (Auditor reports).

          October 2010

    • AA-1 Auditor Requirements

      • AA-1.1 Appointment of Auditors

        • AA-1.1.1

          Specialised licenseesG must obtain prior written approval from the CBB before appointing or re-appointing their auditor.

          October 2010

        • AA-1.1.2

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

          October 2010

        • AA-1.1.3

          The CBB, 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 licenseeG . The CBB will also take into account the track record of the audit firm in auditing specialised licenseesG 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 CBB 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).

          October 2010

        • AA-1.1.4

          In the case of overseas specialised licenseesG , the CBB will also take into account who act as the auditors of the parent firm. As a general rule, the CBB does not favour different parts of a specialised licensee group having different auditors.

          October 2010

      • AA-1.2 Removal or Resignation of Auditors

        • AA-1.2.1

          Specialised licenseesG must notify the CBB as soon as they intend to remove their external auditor, with an explanation of their decision, or as soon as their auditor resign.

          October 2010

        • AA-1.2.2

          Specialised licenseesG must ensure that a replacement auditor is appointed (subject to CBB approval as per Section AA-1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

          October 2010

        • AA-1.2.3

          The external auditor of specialised licenseesG must inform the CBB in writing, should it resign or its appointment as auditor be terminated, within 30 calendar days, of the event occurring, setting out the reasons for the resignation or termination.

          October 2010

      • AA-1.3 Audit Partner Rotation

        • AA-1.3.1

          Unless otherwise exempted by the CBB, specialised licenseesG must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.

          October 2010

        • AA-1.3.2

          [This Paragraph was deleted in October 2012].

          Deleted: October 2012

        • AA-1.3.3

          Specialised licenseesG must notify the CBB of any change in audit partner.

          October 2010

      • AA-1.4 Auditor Independence

        • AA-1.4.1

          Article 61(d) of the CBB Law imposes conditions for the auditor to be considered independent. Before a specialised licenseeG 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 licenseeG .

          October 2010

        • AA-1.4.2

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

          October 2010

        • AA-1.4.3

          If a specialised licenseeG becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the CBB of the fact.

          October 2010

        • AA-1.4.4

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

          October 2010

      • AA-1.5 Licensee/Auditor Restrictions

        • Financial Transactions with Auditors

          • AA-1.5.1

            Specialised licenseesG must not provide regulated servicesG to their auditor.

            October 2010

        • Outsourcing to Auditors

          • AA-1.5.2

            Specialised licenseesG may not outsource their internal audit function to the same firm that acts as their (external) auditor.

            October 2010

        • Other Relationships

          • AA-1.5.3

            Specialised licenseesG and their auditor must comply with the restrictions contained in Article 217 (c) of the Commercial Companies Law (Legislative Decree No. (21) of 2001), as well as in Article 61(d) of the CBB Law.

            October 2010

          • AA-1.5.4

            Article 217(c) of the Commercial Companies Law prohibits an auditor from (i) being the chairman or a member of the Board of DirectorsG of the licenseeG he/she audits; (ii) holding any managerial position in the licenseeG he/she audits; and (iii) acquiring any shares in the licenseeG 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 licensee.

            Amended: October 2012
            October 2010

          • AA-1.5.5

            Article 61(d) of the CBB Law prohibits an auditor from (i) being the chairman or a member of the Board of DirectorsG of the licensee he/she audits; (ii) acting as a managing director, agent or representative of the licensee concerned; and (iii) taking up any administrative work in the licensee, or supervising its accounts, or having a next of kin in such a position.

            Amended: October 2012
            October 2010

          • AA-1.5.6

            The restriction in Paragraph AA-1.5.4 applies to overseas specialised licenseesG as well as Bahraini specialised licenseesG .

            October 2010

          • AA-1.5.7

            A partner, DirectorG or manager on the engagement team of auditing a specialised licenseeG may not serve on the Board or in a controlled functionG of the licenseeG , for two years following the end of their involvement in the audit, without prior authorisation of the CBB.

            October 2010

          • AA-1.5.8

            Chapter AU-1.2 sets out the CBB's "controlled functionsG " requirements.

            October 2010

        • Definition of 'Auditor'

          • AA-1.5.9

            For the purposes of Section AA-1.5, 'auditor' means the partners, DirectorsG and managers on the engagement team responsible for the audit of the specialised licenseeG .

            October 2010

    • AA-2 Access

      • AA-2.1 CBB Access to Auditors

        • AA-2.1.1

          Specialised licenseesG must waive any duty of confidentiality on the part of their auditor, such that their auditor may report to the CBB any concerns held regarding material failures by the specialised licenseeG to comply with CBB requirements.

          October 2010

        • AA-2.1.2

          The CBB may, as part of its on-going supervision of specialised licenseesG , request meetings with a licensee'sG auditor. If necessary, the CBB may direct that the meeting be held without the presence of the licensee'sG management or DirectorsG .

          October 2010

      • AA-2.2 Auditor Access to Outsourcing Providers

        • AA-2.2.1

          Outsourcing agreements between specialised licenseesG and outsourcing providers must ensure that the licensee'sG internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.

          October 2010

        • AA-2.2.2

          Further Rules and Guidance on outsourcing are contained in Module RM (Risk Management).

          October 2010

    • AA-3 Auditor Reports

      • AA-3.1 This Section was deleted in October 2016.

        Deleted: October 2016

        • AA-3.1.1

          [This paragraph was deleted in October 2016]

          Deleted: October 2016
          Amended: July 2011
          October 2010

        • AA-3.1.2

          [This paragraph was deleted in October 2016]

          Deleted: October 2016
          October 2010

      • AA-3.2 Review of Financial Disclosures

        • AA-3.2.1

          Specialised licenseesG that are required to publish financial disclosures in accordance with Module PD must arrange for their external auditor to review these prior to their publication, unless otherwise exempted in writing by the CBB.

          Amended: April 2014
          October 2010

        • AA-3.2.2

          Financing companiesG must arrange for their external auditor to review the annual disclosures required in Module PD, Section PD-1.3 and Chapter PD-4, prior to their submission to the CBB or their publication. This review must be in the form of an agreed-upon procedures report (see also PD-A.2.4). The report must be submitted to the CBB within 3 months of the year end of the concerned financing companyG (see also Paragraph BR-1.1.2).

          Added: April 2014

        • AA-3.2.3

          Financing companiesG must arrange for their external auditor to review the disclosures in the half-yearly financial statements required by Module PD, Paragraph PD-2.1.6 prior to their submission to the CBB or their publication. This review must be in the form of an agreed-upon procedure report. This report must be submitted to the CBB within two months of the end of the half year reporting period of the concerned financing companyG (see also Section BR-1.2.4).

          Added: April 2014

      • AA-3.3 Report on Compliance with Financial Crime Rules [This Section was deleted in October 2012]

        • AA-3.3.1

          [This Paragraph was deleted in October 2012].

          Deleted: October 2012

        • AA-3.3.2

          [This Paragraph was deleted in October 2012].

          Deleted: October 2012

        • AA-3.3.3

          [This Paragraph was deleted in October 2012].

          Deleted: October 2012

    • AA-4 Accounting Standards

      • AA-4.1 General Requirements

        • AA-4.1.1

          Specialised licenseesG must comply with International Financial Reporting Standards / International Accounting Standards and, to the extent that they undertake Shari'a compliant activities, relevant standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

          October 2010

        • AA-4.1.2

          Overseas specialised licenseesG that do not, at the parent licensee level, apply IFRS/IAS are still required under Paragraph AA-4.1.1 to produce pro-forma accounts for the Bahrain branch in conformity with these standards. Where this requirement is difficult to implement, the Bahraini specialised licenseeG should contact the CBB in order to agree to a solution.

          October 2010

        • AA-4.1.3

          Paragraph AA-4.1.1 requires specialised licenseesG that operate exclusively on a Shari'a compliant basis to apply relevant AAOIFI Financial Accounting Standards, depending on the type of Islamic finance contracts entered into. Specialised licenseesG that undertake both conventional finance and Shari'a compliant transactions are required by Paragraph AA-4.1.1 to apply AAOIFI Financial Accounting Standard 18, "Islamic Financial Services Offered by Conventional Financial Institutions".

          October 2010

    • AA-5 Role of External Auditor as Appointed Expert

      • AA-5.1 General Requirements

        • AA-5.1.1

          In accordance with Articles 114 and 121 of the CBB Law, the CBB may appoint appointed expertsG to undertake on-site examinations or report by way of investigations on specific aspects of a licensee'sG business. External auditors may be called upon to be appointed expertsG and should be aware of their role in that capacity by referring to Section BR-3.5 for money changers and administrators or Module GR for representative office licenseesG .

          [The Rules and guidance in this Section were moved to Section BR-3.5 for money changers and administrators and Module GR for Representative offices in April 2012]

          Amended: April 2012
          October 2010

      • AA-5.2 The Required Report

        [The Rules and guidance in this Section were moved to Section BR-3.5 for money changers and administrators and Module GR for Representative offices in April 2012]

        • The content selected is no longer in force and cannot be presented in Whole Section view.

      • AA-5.3 Other Notifications to the CBB

        [The Rules and guidance in this Section were moved to Section BR-3.5 for money changers and administrators and Module GR for Representative offices in April 2012]

        • The content selected is no longer in force and cannot be presented in Whole Section view.

      • AA-5.4 Permitted Disclosure by the CBB

        [The Rules and guidance in this Section were moved to Section BR-3.5 for money changers and administrators and Module GR for Representative offices in April 2012]

        • The content selected is no longer in force and cannot be presented in Whole Section view.

      • AA-5.5 Trilateral Meeting

        [The Rules and guidance in this Section were moved to Section BR-3.5 for money changers and administrators and Module GR for Representative offices in April 2012]

        • The content selected is no longer in force and cannot be presented in Whole Section view.

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