Abstract
Good governance arrangements are a critical organizational element for the proper management of financial resources. In the IMF safeguards assessment policy, governance is an overarching theme of the framework used to assess the central banks of all member countries that borrow IMF resources. Information from the assessments provides the IMF Board with assurance that resources used in lending operations will be managed properly. A sound legal framework that safeguards central bank autonomy and establishes strong transparency and accountability practices is the foundation for good governance for central banks. This chapter provides an overview of the safeguards assessment findings on governance arrangements, with a particular focus on sub- Saharan Africa. It also contains preliminary observations on challenges that arose during the COVID- 19 pandemic.
Introduction
Governance is central to proper management of financial resources in both the private and public sectors. The 2019 biennial OECD Corporate Governance Factbook, which covers 49 jurisdictions, including all G20, OECD, and Financial Stability Board members, notes that nearly all countries covered by the report have national codes or principles. The systematic refinements to these codes and principles, with 84 percent of jurisdictions having amended their company or securities law to incorporate changes introduced since 2015, reflects both the close scrutiny paid to governance and the importance attached to it (OECD 2019).
The 1992 Cadbury Committee in the United Kingdom defined corporate governance as “the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place” (Cadbury Report 1992, p. 15). The 2018 UK Corporate Governance Code notes that this definition of corporate governance remains true today (Financial Reporting Council 2018, p. 1). Although there is no universal definition of governance, the OECD notes that “good corporate governance helps to build an environment of trust, transparency and accountability necessary for fostering long- term investment, financial stability and business integrity, thereby supporting stronger growth and more inclusive societies” (OECD 2021).
Under the IMF Articles of Agreement, “adequate safeguards” must be established for the use of its resources (International Monetary Fund (IMF) 2020, p. 2). This is to ensure that loans to member countries are repaid as they fall due so those resources will become available to other members in need. Safeguards include limits on how much can be borrowed, conditions on the loans, measures to deal with misreporting or arrears, and “safeguards assessments” of central banks.1 The latter, specifically, are public institutions that require autonomy and proper governance to function optimally. Thus, the IMF’s safeguards assessment of central banks of member countries has governance as an overarching aspect of the framework used to engage in this work.
The IMF Safeguards Assessments Policy was introduced in 2000. Safeguards assessments are diagnostic evaluations of central banks’ governance and control frameworks, and involve an assessment of five areas: the external audit mechanism, the legal structure and autonomy, the financial reporting framework, the internal audit mechanism, and the system of internal controls (see Figure 13.1, which shows these five components of the safeguards framework, or ELRIC). As of the end of April 2021, 345 assessments have been conducted across the IMF’s membership, covering nearly 100 central banks. The sub- Saharan Africa region accounts for 116 of these assessments and 25 of these central banks. Central banks are subject to safeguards monitoring for as long as IMF credit remains outstanding. Currently, there are 84 central banks in the safeguards portfolio (about one- third in sub- Saharan Africa). The IMF Executive Board reviews the safeguards assessment policy every five years. In its 2010 and 2015 policy reviews, the Board endorsed a sharper focus on governance as an overarching principle of the safeguards framework (IMF 2010 and 2015).
The remainder of this chapter covers the various aspects of governance through its linkages to the ELRIC framework. The first section discusses the role of central bank law in supporting governance arrangements (the legal structure and autonomy pillar). The second section takes stock of trends in safeguards work, including the safeguards’ findings, lessons learned, and remaining challenges. This section covers two pillars, the internal audit mechanism and system of internal controls. The third section discusses the leading practices observed in terms of accountability and transparency of central banks. It draws specifically on the role of the external audit mechanism and financial reporting framework. Finally, the fourth section outlines the safeguards’ findings and recommendations offered in the assessments conducted during the COVID- 19 pandemic.
Safeguards Analytical Framework: A Clear Focus on Governance
Source: IMF Finance Department.Safeguards Analytical Framework: A Clear Focus on Governance
Source: IMF Finance Department.Safeguards Analytical Framework: A Clear Focus on Governance
Source: IMF Finance Department.The Role of Central Bank Law in Supporting Governance
Central bank autonomy is important in preserving monetary policy independence, which in turn helps to foster desirable macroeconomic outcomes and financial stability. The central bank law is the authoritative guidance that directs central banks, and safeguards assessments include a close review of this legal framework. The central bank law provides the basis for governance structures and mandates for decision- making (governance) bodies. Since 2010, safeguards work has been adapted to more closely review key governance bodies such as the board, audit committee and the interaction between the senior executive management team (the governor and deputy governors) and the board to assess checks and balances. Safeguards assessments review the central bank law to ensure that the four dimensions of autonomy— functional, institutional, financial, and personal— have strong legal provisions.2
Sub- Saharan Africa, along with other regions, has seen increased attention on legislation to improve governance. Between 2015, after the last policy review, and the end of 2019, 37 out of 43 central banks assessed, that is, 5 out of every 6, made recommendations to reform the central bank legislation. Of these 37 central banks, 28 had vulnerabilities that were deemed sufficiently significant that they were included as part of reform measures under IMF- supported programs. Progress is being made, as in 14 of these cases new central bank laws have been enacted, and, as of April 2021, 9 other draft amendments have been submitted to the cabinet or parliament (see Figure 13.2). Sub- Saharan Africa fares well with respect to legislative reforms to improve central bank governance, accounting for 50 percent of the central banks that have enacted new laws and one- third of central banks that are advancing draft amendments through submissions to the cabinet or parliament.
The quality of governance at central banks relies extensively on how effective the central bank board, audit committee, and management team are in fulfilling their roles and responsibilities. While governance structures such as audit committees have increasingly been established over the last decade or so in the safeguards portfolio, there continues to be a substance- over- form issue that needs to be resolved. It is one thing to have a board or audit committee in place, and another to assure that it is functioning as intended. Key governance attributes that foster good practices, and remain a challenge in many jurisdictions, include the following:
Independence and experience: A majority nonexecutive board with strong requirements for professional experience, incompatibility criteria to avoid potential conflicts of interest, and diverse backgrounds to help support the executive team on strategic direction. This board should also provide independent oversight of the executive team’s execution of day- to- day operations.
Relevant professional backgrounds: An audit committee should typically be composed exclusively of nonexecutive board members. At least one member should have deep accounting or audit experience in order to provide sufficient value- adding independent oversight of the external and internal auditors’ performance, the system of internal controls, and risk management.
Collegial approach: A governor, supported by a professional team of deputy governors, should facilitate close collaboration through collegial decision-making in management practices. Collegial teams should embrace wide deliberation and solicit input from senior staff with appropriate expertise to help ensure that decisions have taken account of relevant factors and alternative considerations.
The role of nonexecutive board members is to bring their diverse professional experience in order to facilitate decisions in a consultative manner on issues brought by the executive central bank team and ensure the compliance of these decisions with internal policies and the strategic direction of the whole board. Good central bank laws clearly delineate the responsibilities of the board and the governor and provide audit committees with a strong mandate and authority to exercise effective independent oversight. Empirical data from over 100 safeguards assessments conducted between 2010 and 2017 showed that audit committees can be key enablers of a strong governance environment at central banks. The common characteristics of an effective committee are (1) broad-based composition—it should include independent members with strong knowledge and expertise; (2) diligence and availability— its members should devote sufficient time to fulfill their role; and (3) close oversight— its members should closely monitor both external and internal auditors, who should be separate independent assurance providers (Chamoun and van Greuning 2018).
Challenges encountered in the review of the legal structure and autonomy of central banks include four broad underlying factors: (1) central bank laws that are outdated and have not been reviewed for prolonged periods; (2) a lack of compliance where strong de jure provisions are not followed in practice; (3) scarcity of suitably qualified independent individuals to fill board and audit committee positions; and (4) concentration of powers in the governor or executive team without an independent oversight board to provide checks and balances. The aforementioned strong focus on governance is beginning to foster an encouraging shift to modernize central bank legislation, as highlighted at the beginning of this section. In addition, some jurisdictions have looked beyond their national borders to seek suitable individuals to fill nonexecutive board positions, which is possible as long as the regulatory framework permits it.
Trends in Safeguards Assessments
Safeguards assessments are diagnostic evaluations of central banks’ governance and control frameworks and involve an assessment of five areas (see Figure 13.1). Safeguards assessments assign a risk rating to each ELRIC category: the four internal and confidential risk ratings are low, medium- low, medium- high, and high. The assessments are conducted for member countries that seek lending arrangements from the IMF, and as can be seen in the map in Figure 13.3, the more than 330 assessments that have been completed thus far have an extensive global reach.
An aggregated analysis of the risk ratings of all assessments conducted globally reveals that all regions, except for Europe, have average risk ratings that fall between medium- high and medium- low, or scores of 3 and 2, respectively (see Figure 13.4). Considering that a medium- low rating indicates that no serious vulnerabilities have been identified, these are arguably favorable results that are consistent with the general observations highlighted as part of the 2015 safeguards policy review, that central banks have improved their control, audit, and financial reporting practices. The following section, on accountability and transparency, which covers the external audit and financial reporting pillars, further affirms that the majority of central banks are adhering to internationally accepted standards in these areas. The broad challenges experienced regarding the legal structure and independence of central banks were explained earlier, in the section on the role of central bank law. This pillar— legal structure and autonomy— and the pillars of the internal audit mechanism and the system of internal controls, prove to be the ones that provide the most challenges not just for the sub- Saharan Africa region, but across the safeguards portfolio.
A deeper dive into the sub- Saharan Africa region (see Figure 13.5) confirms that over time the external audit mechanism and the financial reporting frameworks of central banks have significantly improved. On the other hand, it also reveals that the legal structure and autonomy of central banks continue to face challenges, which is partly a result of an evolving assessment of this pillar that has emphasized more scrutiny on governance since the 2010 safeguards policy review. Central banks are taking steps to address these shortcomings by making amendments to their legal frameworks in order to align them with leading practices. Internal audit and internal controls pillars have seen only a marginal improvement, owing in part to the capacity challenges and exogenous risks faced by institutions in today’s world.
Safeguards Risk Ratings by ELRIC Pillar for Sub-Saharan Africa
Source: IMF safeguards database.Safeguards Risk Ratings by ELRIC Pillar for Sub-Saharan Africa
Source: IMF safeguards database.Safeguards Risk Ratings by ELRIC Pillar for Sub-Saharan Africa
Source: IMF safeguards database.The main drivers for the remaining high- risk ratings in the internal audit and internal controls pillars are as follows:
Internal controls: The effectiveness of governance bodies remains a key source of high risk in this pillar. This is the case for those central banks that have had prolonged vacancies on their boards. It also is the case for central banks that have experienced weak oversight, due either to board members not having sufficient requisite expertise or to provisions in the central bank law related to independent oversight that need to be strengthened. For instance, within sub- Saharan Africa, the Lusophone countries (for example, Angola, Mozambique, and São Tomé and Príncipe) tend to face more challenges related to their governance structures, which traditionally have not included an independent oversight body, that is, a majority nonexecutive board. Other factors include weak controls in foreign reserves management, compilation of program monetary data, and operations related to emergency liquidity assistance.
Internal audit: Internal audit functions continue to face exogenous challenges such as increased risks related to IT, cybersecurity, and SWIFT compliance. It is often difficult for audit functions to acquire talent with the requisite background and experience to keep up with these developments, and in some cases to retain such talent. A more fundamental issue seen in some jurisdictions is the difficulty of obtaining internal audit professional certifications that can help modernize the activity by moving it from a compliance-based function to a risk- based approach. These capacity issues tend to require an investment of time and sponsorship from senior management to achieve the desired results. Notwithstanding these challenges, on an aggregated basis, central banks have improved their controls and processes between their first- ever and most recent assessments (see Figure 13.6). A subsequent lower score signifies a shift toward the risk ratings of low or medium- low, that is, scores of 1 and 2, respectively. The average risk rating (from 2.93 to 2.75) has overall improved in sub- Saharan African countries, in line with the trend for all regions since their first- time assessments, except for the Western Hemisphere region. The deterioration in the Western Hemisphere can be partly explained by the fact that IMF credit is of a revolving nature and lending to Latin America has not been active since the early 2000s, and has just resumed. First- time assessments and assessments after a long lapse of time tend to identify significant vulnerabilities. In contrast, the Middle East and Central Asia region has seen the biggest improvement thus far, followed by the Asia- Pacific region.
Sub- Saharan Africa accounts for about a third of safeguards assessments conducted (see Figure 13.7), while other regions account for almost one- fifth, except for Asia and Pacific with 9 percent of the total. That said, enhanced and more engaged safeguards monitoring strategies have also contributed to many of these improvements.3 Monitoring activity, in many instances, has involved following through on safeguards- related reforms, such as legal amendments or the transition to International Financial Reporting Standards (IFRS), as well as reviving the authorities’ commitment to address long- outstanding recommendations. Specifically, monitoring visits have been conducted for six sub- Saharan African countries during 2017–2020, and on average, approximately 4.5 repeat assessments have been conducted in the region. This signals that a more interactive approach to following up can help in addressing some of the challenges observed and consequently improving the risk ratings of the region.
Accountability and Transparency: Role of External Auditors and Financial Reporting
Autonomy is important in order for a central bank to achieve its mandate, and the counterweight to autonomy is accountability and transparency. An independent, high- quality external audit of the central bank’s published financial statements, in line with the International Standards on Auditing (ISA), provides accountability to stakeholders on the use of funds.4 The robust nature of these standards assures stakeholders of the rigor and high quality of the audits. Equally important is the basis for financial reporting, which enables a sufficiently transparent and widely understood set of standards upon which the auditors must opine. Given the complexities of a central bank audit, an audit firm with international affiliation provides certain benefits that support audit quality, including access to a wide network of expertise and quality- control procedures that align with ISA. For financial statements to be useful, they must be relevant, reliable, consistent in presentation over time, and based upon recognized standards, such as IFRS. This section covers these aspects in further detail based on 31 central banks of IMF member countries in sub- Saharan Africa and the two regional central banks of the CFA zone, representing 14 countries that do not have their own central bank.5,6
Accountability
As public institutions, central banks should be held accountable for the use of their resources. Under the IMF safeguards assessment policy, an independent and high- quality external audit of a central bank’s financial statements is an important accountability requirement. An audit provides assurance as to the reliability and accuracy of the information contained in the financial statements. When assessing the external audit arrangements, ISA are the benchmark.
Nearly all central bank (94 percent) audit reports in sub- Saharan Africa state use of ISA.7 In comparison, Arda and others (2018) found that out of 170 central banks studied around the world only about 64 percent used ISA. The sub-Saharan Africa region, and the broader safeguards population (84 central banks), of which 95 percent state use of ISA, generally fare well on this aspect of accountability.
The majority of central banks—94 percent—in sub-Saharan Africa are audited by reputable international audit firms, that is, either by the four large international audit firms (Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers) or the second- tier international firms (BDO, Mazars, and Grant Thornton) (see Figure 13.8). This compares favorably with the global practices noted by Arda and others (2018), who found that 70 percent of worldwide audits had been conducted by these large international firms. The internationally audited sub-Saharan banks (the 94 percent, or 30 central banks), include 10 central banks that are subject to joint audits, where two or more auditors are appointed to share responsibility for conducting the audit. There are two primary reasons for joint audits: (1) legal provisions in the central bank law (the case for four central banks); or (2) a requirement under an IMF program due to low audit capacity in the country that necessitates an international firm with requisite experience to work with a local firm (the case for six central banks).
Central Banks’ External Audit Arrangements in Sub-Saharan Africa
Source: IMF safeguards database.Central Banks’ External Audit Arrangements in Sub-Saharan Africa
Source: IMF safeguards database.Central Banks’ External Audit Arrangements in Sub-Saharan Africa
Source: IMF safeguards database.At the conclusion of its work, an external auditor issues an opinion on the financial statements based on their evaluation of the audit evidence obtained. Nearly 80 percent of central banks in sub- Saharan Africa had unmodified (clean or without qualification) audit opinions on their latest published financial statements (see Figure 13.9).8 This is slightly lower than the 87 percent of clean audit opinions in the 84 central banks in the safeguards portfolio. The nature of qualifications related, among other things, to (1) foreign exchange differences recorded directly in equity; (2) auditor scope limitations; (3) non- consolidation of a subsidiary; and (4) recoverability of loans and advances. In one case, the auditor was unable to obtain sufficient appropriate audit evidence on which to base their opinion, and therefore concluded that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. Safeguards assessments often recommend that central banks work to remedy the factors that lead to modified opinions.
A strong accountability mechanism should also feature an effective oversight body, such as an audit committee, with primary responsibility for overseeing the efficacy of audit, financial reporting, and control processes in a central bank. The importance of such oversight is evidenced by remarkable improvements in the safeguards risk profiles of central banks (see Chamoun and van Greuning 2018).
Transparency
Transparency of central bank operations, an important component of the IMF Code of Good Practices in Monetary and Financial Policies (1999), promotes accountability and good governance. The publication of audited financial statements is a key requirement of the IMF safeguards assessment policy. Likewise, the timeliness of publication is essential, as outdated information loses its relevance. Application of a robust and generally accepted accounting framework assures stakeholders of the reliability and comparability of reported results. Use of alternate accounting practices not only hampers transparency, but can allow central banks to make exceptions in the recording, measurement, and reporting of transactions (see IMF 2002). The application of a widely recognized accounting framework, such as IFRS, provides additional assurance that financial information is presented on a transparent and widely recognized basis.9
Publication of Central Banks’ Financial Statements in Sub-Saharan Africa
Source: IMF safeguards database.Publication of Central Banks’ Financial Statements in Sub-Saharan Africa
Source: IMF safeguards database.Publication of Central Banks’ Financial Statements in Sub-Saharan Africa
Source: IMF safeguards database.There has also been a positive trend toward greater transparency in financial reporting since the inception of the IMF safeguards assessment policy in 2000. Currently, 30 central banks (94 percent) in sub- Saharan Africa publish their full financial statements (Figure 13.10), which compares favorably with the findings by Arda and others (2018) that only around 83 percent of central banks do so globally.10 Notwithstanding this, there are two central banks in sub- Saharan Africa that do not publish their annual financial statements on a consistent basis. In one case it was due to the absence of procedures, and in the other case it was due to the lack of a legal requirement for such publication, though neither of these constitutes acceptable grounds for nonpublication.
Central banks are making progress toward implementing IFRS, but challenges remain. Around 60 percent of central banks in sub- Saharan Africa have fully adopted IFRS, with a further 31 percent either in the process of implementing IFRS (five banks) or have legal provisions that limit full implementation (five banks) (see Figure 13.11). The latter relates to two main issues, the most noteworthy being the treatment of unrealized foreign exchange gains as stipulated in International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates.11,12 The second issue is the result of deviations from the recognition and measurement of financial instruments (that is, IFRS 9, Financial Instruments), in particular the recording of legacy government debt.13 The remaining central banks (three) follow local accounting standards or have a defined framework that tends to fall short of international standards. Specifically, these shortfalls relate to (1) insufficient disclosures in the financial statements; (2) the lack of fair- value measurement for certain financial instruments and impairment of assets; and (3) the use of discretionary accounting policies that may not reflect the true financial position of the central bank.
Central Banks’ Accounting Frameworks in Sub-Saharan Africa
Source: IMF safeguards database.Central Banks’ Accounting Frameworks in Sub-Saharan Africa
Source: IMF safeguards database.Central Banks’ Accounting Frameworks in Sub-Saharan Africa
Source: IMF safeguards database.IFRS is permitted in the majority of sub- Saharan African countries. Legal impediments are often cited in some countries as obstacles to adopting IFRS; however, according to the IASB, the application of IFRS is required or permitted in 23 countries (that is, 70 percent) in the region.
Observations Drawn from the Covid-19 Pandemic
The COVID- 19 pandemic has caused financial strain in many countries, due to the urgent financial needs faced by authorities at the onset of the health crisis. As of the end of March 2021, some 85 IMF member countries have received approvals from the IMF Board for emergency financing (IMF 2021). While a majority of this financing has gone to treasuries, in the form of budget support, this has nevertheless resulted in a sharp increase in the volume of safeguards assessments to be conducted. Most countries are expected to require more financial assistance to deal with the macroeconomic effects brought about by this health pandemic. IMF financing is typically directed to central banks, and the safeguards policy requires that the assessments be completed before receiving IMF Board approval for these subsequent additional lending arrangements. During the period between May 2020 and April 2021, fieldwork for some 23 virtual assessments has been completed.
The central banks assessed during the pandemic have broadly been resilient in their business continuity processes. That said, some central banks have limitations in the ability to have their staff fully telework and thus have had to rely on skeletal staff deemed essential for core operations to be present in person on a sustained or rotational basis.
The assessments have also seen an emergence of quasi- fiscal operations and direct financing of the government as central banks and national authorities attempted to respond and support the economy. Of the 23 assessments conducted, 10 central banks (43 percent) had adopted some form of these operations. These included preferential (subsidized) loans to sectors of the economy to provide liquidity support, and emergency decisions to extend further credit to the government beyond limits in the central bank law. Such quasi- fiscal activities could undermine central bank autonomy, and therefore should be mitigated through sound accountability and transparency mechanisms. In light of the challenging and unprecedented nature of the current circumstances, advice in such cases has been to ring- fence these activities by limiting their scale and establishing clear and transparent time- bound exit strategies that transition to normal lending operations.
In a number of cases, central banks had already gone into such unconventional activities with clear caps on the resources approved for such new operations and with near- term transition provisions for governments to take on the fiscal responsibility of providing subsidies or additional lending to select critical sectors of the economy that have seen disruption in the pandemic. In some other cases, the pandemic has provided an opportunity to revisit central bank laws and ensure that provisions include force majeure clauses that ex ante provide a clear and time-bound set of conditions that would allow the central bank to take exceptional measures to support the economy, without resorting to ad hoc decisions that could jeopardize the central bank’s institutional and financial autonomy.
Conclusion
Sub- Saharan Africa has a broadly well- developed audit industry with a strong presence of large international firms that help ensure that audits are conducted in compliance with international standards on auditing. This is accompanied by a growing use of international financial reporting standards in the region, which, coupled with rigorous audits, provide stakeholders with a reliable independent source of assurance on the transparency of the use of public resources.
These factors and achievements go a long way in establishing the accountability of central banks to their stakeholders. That said, the audit industry has been facing calls for reform in the face of recent scandals in which clean audit reports did not, in fact, identify misappropriation of funds.14 These incidents indicate that clean audit opinions are not a panacea, even if they are, arguably, exceptions and certainly not a new phenomenon in the history of audits. On one end of the spectrum, it is true that an audit does not certify against fraudulent activity, but there is scope to narrow on the red flags that should serve as alerts.
Another area that continues to present challenges is the governance of institutions. Most central banks have established governance bodies— oversight boards and audit committees— to oversee the executive team that is responsible for day- to- day operations. The challenge in most countries, including those in sub- Saharan Africa, is to have proper composition in these bodies: majority nonexecutive (independent) boards and exclusively nonexecutive board members on audit committees in order to assure good independent oversight of the executive team, professionalism and experience of the nonexecutives so they provide true discipline and relevant expertise in carrying out their responsibilities, and strong institutional support so that the strategic decisions and direction provided by these bodies are well executed and complied with.
The above aspects need to be enshrined in a well- designed central bank legal framework. Safeguards experience shows encouraging shifts, with more central banks amending, or in the process of amending, their legal frameworks. The change in the law needs to be coupled with strong ownership to ensure that the human side— implementation of the legal framework— is robust and sustained.
References
Atilla Arda, Martin Gororo, Joanna Grochalska, Mowele Mohlala. 2018. “External Audit Arrangements at Central Banks.” IMF Working Paper 18/199, International Monetary Fund, Washington, DC.
Elie Chamoun, and Riaan van Greuning. 2018. “Effectiveness of Internal Audit and Oversight at Central Banks: Safeguards Findings— Trends and Observations.” IMF Working Paper 18/125, International Monetary Fund, Washington, DC.
Financial Reporting Council. 2018. “The UK Corporate Governance Code.” London, United Kingdom.
International Monetary Fund (IMF). 1999. “Code of Good Practices in Monetary and Financial Policies.” Washington, DC.
International Monetary Fund (IMF). 2002. “Safeguards Assessments— Review of Experience and Next Steps.” IMF Policy Paper, Washington, DC.
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International Monetary Fund (IMF). 2020. “Protecting IMF Resources— Safeguards Assessments of Central Banks.” IMF Factsheet, Washington, DC.
International Monetary Fund (IMF). 2021. “COVID- 19 Financial Assistance and Debt Service Relief.” Washington, DC. https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker.
Organisation for Economic Co- operation and Development (OECD). 2019. “OECD Corporate Governance Factbook 2019.” Paris: OECD.
Organisation for Economic Co-operation and Development (OECD). 2021. Paris: OECD.
Sir Adrian Cadbury. 1992. “Report of The Committee on The Financial Aspects of Corporate Governance.” London, United Kingdom.
Wouter Bossu, and Arthur D. P. Rossi. 2019. “The Role of Board Oversight in Central Bank Governance: Key Legal Design Issues.” IMF Working Paper 19/293, International Monetary Fund, Washington, DC.
See IMF (2020) for further details on the components of the framework and process.
See Bossu and Rossi (2019). Paragraph 17 describes the four aspects of autonomy.
Experience in cases in which an update assessment is conducted in a country where the IMF has had no financing arrangements, and thus no safeguards assessment interactions over the last decade, indicates that risk ratings are typically higher owing to limited exposure to leading practices.
ISA are the benchmark standards for the performance of audits of financial statements, issued by the International Auditing and Assurance Standards Board. The ISA and IFRS are the benchmarks used in safeguards assessments for external audits and financial reporting, respectively.
The CFA franc zone consists of 14 countries in sub- Saharan Africa, each affiliated with one of two monetary unions. Benin, Burkina Faso, Côte d’Ivoire, Guinea- Bissau, Mali, Niger, Senegal, and Togo comprise the West African Economic and Monetary Union. The remaining six countries— Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon— comprise the Central African Economic and Monetary Union.
Data presented are based on publicly available information, primarily from central banks’ audited financial statements. Information was available for all but one central bank in sub- Saharan Africa.
In one case, the central bank is audited by the auditor-general under International Standards of Supreme Audit Institutions (ISSAI), as issued by the International Organization of Supreme Audit Institutions. Since 2010, these standards have been reviewed annually to ensure consistency with ISA. This does not mean, however, that safeguards assessments did not identify shortcomings in the application of ISA.
An unmodified audit opinion refers to audits for which the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
IFRS were developed and are maintained by the IASB, an independent accounting standard- setting body. The IASB’s objective is that the standards be applied on a globally consistent basis. According to the IASB website, IFRS are now used by more than 140 countries, including three- quarters of the G20.
The number is coincidental; these 30 central banks are not the same ones that were audited by international firms shown in Figure 13.8.
IAS 21 The Effects of Changes in Foreign Exchange Rates, https://www.ifrs.org/issued-standards/list-of-standards/ias-21-the-effects-of-changes-in-foreign-exchange-rates/.
Most central bank laws have provisions that prohibit the distribution of unrealized gains, which is why central banks are able to apply IFRS. However, there are some central banks that record unrealized gains directly in equity with an equivalent receivable recorded on the balance sheet due to the fact that the government retains the foreign exchange risk.
In these cases, legacy debt is recorded at historical cost instead of fair value. Applying the fair- value methodology could result in the recording of significant losses on the central bank’s income statement, which would result in the erosion of the bank’s capital, and could trigger recapitalization.
Recent scandals include those in South Africa on KPMG’s audits of VBS Mutual Bank and tax services provided to the Gupta family; in the United Kingdom on Deloitte and KPMG’s audit of Car-illion; Ernst & Young’s European audit of the German firm Wirecard; and Pricewaterhouse Cooper’s audits in the United Kingdom of Redcentric and BHS, to name a few.
