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SIB/64/2026 – EXTERNAL AUDITOR OF AN INSURANCE COMPANY

National Bank of EthiopiaSIB/64/2026

Summary

This directive establishes requirements for the appointment, selection, and responsibilities of external auditors for insurance companies in Ethiopia. It aims to ensure the accuracy and reliability of financial statements, enhance corporate governance, and improve the effectiveness of risk-based supervision.

Who's affected

Insurance companies and their appointed external auditors operating in Ethiopia.

Action required

Insurance companies must ensure their selected external auditors meet the licensing, qualification, independence, and experience requirements outlined in the directive, and submit approval requests to the National Bank within specified timelines.

Key points

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  • Mandates competitive bidding for external auditor appointment, with exceptions for government-owned insurance companies.
  • Limits the term of office for external auditors to a maximum of two consecutive terms (six years).
  • Requires thorough vetting of external auditors for licensing, qualifications, experience, and independence.
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    • Outlines specific responsibilities for the Board of Directors and the external auditor.
    • Details reporting and disclosure requirements for insurance companies to the National Bank and the public.
    • Introduces 'Fit and Proper Declaration' and 'Independence Confirmation' forms for audit engagement team members.
    • Grants the National Bank significant oversight powers, including ordering auditor replacement and accessing audit working papers.

Requirements

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  • External auditors must be licensed by AABE and have renewed their licenses.
  • Audit engagement teams must have adequate IFRS knowledge, evidenced by training certificates.
  • Audit managers and team members need appropriate qualifications and experience in insurance audits.
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    • Audit engagement teams must have expertise in fair value estimation.
    • Audit engagement team members cannot have been employees of the insurance company in the last three years.
    • External auditors cannot receive insurance services, loans, or advances from the company they audit, except in normal business at arm's length.
    • Audit contracts must state that they can be cancelled if the auditor fails to meet directive criteria.
    • External auditors must complete written Independence Confirmation and Fit and Proper Declaration forms.
    • Insurance companies must submit approval requests for external auditor appointments/re-appointments to the National Bank within 20 working days.
    • Insurance companies must notify the National Bank before removing or changing an approved external auditor.
    • Board of directors must ensure external auditors have unhindered access to information.
    • Board of directors must ensure attendance at pre-audit and exit meetings with external auditors.
    • Board of directors must monitor the independent conduct of the audit function.
    • Board of directors must ensure all significant business lines, activities, and processes are audited.
    • Board of directors must review audit engagement letters before offering work.
    • Board of directors must recommend the appointment and approval of external auditors to the shareholders' meeting.
    • Board of directors must ensure fair and transparent reporting and prompt publication of financial statements.
    • Board of directors must conduct deliberations on audit findings with internal auditors.
    • Board of directors must evaluate the effectiveness of the audit process annually.
    • Audit reports must be presented directly by the external auditor to the shareholders.
    • Insurance companies must submit audit reports and management letters to the National Bank within three months of the financial year-end.
    • Management letters must include early warning issues such as internal control weaknesses, mis-valuations, breaches of laws, irregularities jeopardizing policyholders or creditors, going concern issues, adjustments, adverse risk changes, and governance weaknesses.
    • Insurance companies must post audited financial statements and related disclosures on their website within two weeks of the external audit report's approval.
    • Insurance companies must have disclosure policies and procedures addressing financial records and related information.

Rights and permissions

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  • The National Bank may order an insurance company to replace its external auditor if accused of conflict of interest, failing eligibility, or inadequate performance.
  • The National Bank may access external auditor's working papers, demand walk-through presentations, require audit scope extension, or call tripartite meetings.
  • The National Bank may file complaints or provide information to AABE regarding unsatisfactory audit work for investigation.

Restrictions

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  • An external auditor appointed through competitive bid cannot hold office for more than one term (three consecutive years).
  • An external auditor can be appointed for a maximum of two consecutive terms (six years), after which a three-year lapse is required before re-appointment.
  • An external auditor appointed by subscribers' meeting who is reappointed by the first annual general meeting shall only serve for two consecutive years.
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    • An external auditor who ceases an engagement for an unacceptable reason can only be considered for re-appointment after a three-year lapse.
    • No insurer shall remove or change its external auditor without notifying the National Bank.

Penalties

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  • External auditors may face disciplinary or legal actions if they fail to meet directive criteria or are found to be not independent.
  • Auditors will be legally responsible if they do not comply with independence rules listed in Annex I.
  • Failure to comply with the directive may lead to investigations by AABE initiated by the National Bank.

Objectives

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  • To ensure insurance companies maintain accurate and reliable financial records in line with IFRS and regulatory requirements.
  • To ensure insurance companies have adequate governance for appointing qualified and independent external auditors.
  • To enhance the quality and effectiveness of Risk Based Supervision (RBS) through reliance on external auditors' work.
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    • To enhance market discipline and public confidence through necessary disclosures.

Organizations

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  • National Bank of Ethiopia
  • Accounting and Auditing Board of Ethiopia (AABE)
  • Office of Auditor General

Legal references

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  • Insurance Business Proclamation No.746/2012
  • Insurance Business (Amendment) Proclamation No.1163/2019
  • International Financial Reporting Standards (IFRS)
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    • International Standards on Auditing (ISA)
    • Accounting and Auditing Board of Ethiopia (AABE) professional code of ethics/conduct
Original sourcehttps://nbe.gov.et/files/sib-64-2026/
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