The business entities supervised by the Central Bank of Kuwait and Capital Markets Authority are required to comply with the requirements of review, examination and assessment of internal control systems as it is a critical exercise for business entities, which should be conducted on an annual basis in order to ensure adequacy and completeness thereof with a view to maximizing effectiveness and efficiency in managing the operations and business at minimal risks associated with the business.
What is the importance of Internal Control Review?
The internal control review is a necessary requirement in light of the constant changes in the business and information technology landscape worldwide and the legislation governing the business environment. Furthermore, the internal control review is vitally important for the internal audit function as it enables them to verify the extent of application of internal control systems within the business entity, and in case of absence of application thereof, to take the corrective actions and establish the measures to prevent their reoccurrence.
What are the regulatory requirements related to establishing Internal Control Systems?
For Boursa Kuwait-listed companies
In the State of Kuwait, Law No. 7 of 2010 concerning the Establishment of Capital Markets Authority and Regulation of Securities Activity was promulgated on 21 February 2010 and its Executive Bylaws were issued under Resolution No. 72 of 2015 on 9 November 2015, which address the Internal Control in Module 15 – Corporate Governance, where its requirements include but are not limited to organizational structure, business charters and codes, delegation of authority matrix, processes, policies and procedures manuals, IT systems, and performance appraisal systems for the members of the Board of Directors and executive management.
For CMA-licensed persons
In addition to internal controls that are mandated for listed companies, the CMA-licensed persons shall comply with additional internal control systems in accordance with Module 6 – Internal Policies and Procedures of Licensed Persons, which include but are not limited to complying with the requirements of competence and integrity of licensed persons, separation among activities, handling customers’ complaints, and developing disaster recovery and business continuity plans.
For financial institutions licensed by the Central Bank of Kuwait
As per the Central Bank of Kuwait (CBK) Circular dated 14 November 1996 regarding the Banks Guidelines Manual, Circular dated 5 September 1995 regarding the Exchange Companies Guidelines Manual, and Instructions dated 3 September 2013 to Finance Companies, the internal control systems shall cover several aspects including internal controls related to accounting and other records, organizational structure, segregation of duties and responsibilities, safeguarding of assets, and controls in information technology environment.
Is internal control review, examination, and assessment reporting mandatory in Kuwait?
Yes, it is mandated that the following entities shall appoint an independent auditor to conduct an internal control review, examination, and assessment:
| Entity subject to internal control review, examination, and assessment | Regulatory Body |
|---|---|
| Boursa Kuwait-listed companies | Capital Market Authority |
| CMA-licensed persons | Capital Market Authority |
| Licensed local banks and branches of foreign banks in Kuwait | Central Bank of Kuwait |
| Licensed financing companies | Central Bank of Kuwait |
| Licensed exchange companies | Central Bank of Kuwait |
What is the organizational level responsible for establishing controls and the Internal Control Review within business entities?
The Board of Directors is responsible for ensuring the integrity of internal control systems, while the executive management is responsible for developing and implementing the internal control systems.
Who will conduct the review, examination, and assessment of internal control systems?
Licensed auditor licensed by Kuwait Ministry of Commerce and Industry and registered with other regulatory bodies.
What is the Deadline for the Internal Control Review Report submission to the Capital Markets Authority?
Circular No. 11 of 2016, dated 9 November 2016, sets forth that listed companies and licensed persons shall submit to the CMA the said report on an annual basis within a maximum of ninety days from the end of the financial year.
What is the deadline for the submission of the Internal Control Examination and Assessment Report to the Central Bank of Kuwait?
Business entities supervised by CBK shall submit the said report to the Central Bank of Kuwait on an annual basis no later than 30 June of each year.
What is the added value to business entities from Internal Control Review?
- Comply with laws, regulations, resolutions, and instructions issued by the Capital Markets Authority, Central Bank of Kuwait, and other regulatory and administrative authorities.
- Identify the efficiency and effectiveness of the internal control systems in place in the business entity through additions or updates to ensure sustainable updates.
- Enhance the business entity’s performance efficiency and competitive potential by tackling unforeseen changes in the market and defining the causes of failure to implement the internal control systems.
What are the Services offered by Baker Tilly Kuwait?
- Preparing Assurance Report on Internal Control Review
This report should be prepared by the listed companies and CMA-licensed companies on an annual basis no later than 31 March of every year.
- Preparing Assurance Report on Examination and Assessment of Internal Controls
This report should be prepared by business entities supervised by the Central Bank of Kuwait no later than 30 June of every year.