The 2008 financial crisis highlightedweaknesses in the risk management, control and governanceprocesses of banks as well as in their statutory audit andfinancial supervision. This led to increased scrutiny of therespective roles and interactions of banking supervisors andexternal auditors who are key contributors to marketdiscipline. Auditors ensure that financial information istransparent and reliable while supervisors provideconfidence in the financial systems. Both supervisors andauditors allow market players to make informed decisions andcontribute to financial stability. Since 2008, regulatorsand lawmakers have strived to address the shortcomingsidentified during the crisis by taking various initiativesto reform the international financial architecture Inparticular, a 2014 Basel Committee on Banking Supervisionpaper explored the interaction between supervisors andexternal auditors and linked their enhanced relationshipswith improved audit quality of banks’ financial statementsand effective banking supervision. This report presents thefindings of the survey conducted by the World Bank Centrefor Financial Reporting Reform (CFRR) – Financialsupervisors and external auditors: building a constructiverelationship. The survey was sent to supervisors from theEuropean Union and other countries in Eastern Europe, SouthEastern Europe and the South Caucasus to explore practicesthat make better use of information provided by externalauditors and influence the audit quality of banks’ financialstatements. The report was developed after several workshopdiscussions amongst senior staff from central banks andbanking regulatory agencies, who recognized the importanceof an effective relationship to assist both supervisors andauditors in discharging their duties.
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