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The Commissioner of Capital Market, Insurance and Savings at the Ministry of Finance, Prof. Oded Sarig, and Supervisor of Banks at the Bank of Israel, David Zaken, are assessing changes in how accountants audit the financial reports of banks and insurance companies. The change is intended to strengthen the independence of the accounts and to encourage additional accountants to audit these entities, while maintaining the quality of the audit. In this regard, the two regulators are publishing a joint document for public comments.

There are two main considerations facing the supervisors. The first is that the low number of firms working in the field and the absence of alternatives among them raises a concern that long-term relationships between the auditor and the audited entity may harm the independence, criticism and professional skepticism of the auditor.  The second is that the knowledge and professionalism required of those auditing banks and insurance companies, which are complex entities with unique accounting and disclosure rules, require accounting firms to develop and maintain a high level of expertise.

The supervisors are considering the use of the following alternatives, separately or combined, in dealing with the concentration among accountants auditing banks and insurance companies:
 

1.    Requiring a periodic rotation among auditing firms.
2.    Setting limits on the maximum market share allowed for an individual accounting firm in the financial system.
3.    Limiting joint auditing.
4.    Placing additional limitations on the provision of additional services by an auditing firm.
 
The Commissioner of Capital Market, Insurance and Savings, Prof. Oded Sarig, said that, “Our concept is that an external auditor acts as a gatekeeper on our behalf and on behalf of the public.  Therefore, any outline for changes in the external auditing requires us to balance professionalism with the independence of the auditor.”

Supervisor of Banks David Zaken added that, “taking the proposed steps, individually or in combination, together with the adoption of the principles recently published by the Basel Committee on the matter, will lead to an improvement in the quality of the audits at banks and to their increased effectiveness.”

The public is invited to send comments until July 25, 2013 to the contact people listed in the attached documents.  The document can be found at the following websites:

On the Capital Market, Insurance and Savings Department website:

On the Banking Supervision Department website: www.boi.org.il