Public interest entities
Credit institutions, insurance companies, pension funds and and securities issuers, whose securities are listed on a regulated market, are defined as public interest entities in the Act on Auditors and Audits No. 94/2019 on Auditors and Auditing and Act No. 3/2006 on Annual Accounts as public interest entities.[1]
The acts underscore the macroeconomic importance of such entities by making greater demands on the reliability and integrity of their audits. The purpose is to ensure the quality of their annual accounts and other financial information. A special supervisory committee, the audit committee, is required to operate within a public interest entity. The board is responsible for appointing the audit committee, and committee members must be independent of the entity's auditor, with the majority of members also being independent of the entity itself. The audit committee's role includes having supervision over the process of preparing financial statements, the functionality and organisation of internal controls, and the audit of annual accounts. Furthermore, the audit committee makes a proposal to the board for the selection of an auditor and monitors the auditor's work. To ensure the independence of audits within public interest entities, there are limitations on the auditor's period of service, increased requirements for quality control of the work of the auditor or audit firm, and they are required to publish a transparency report containing information about the relevant auditor or audit firm.
Auditors and audit committees at public interest entities thus play a crucial role in verifying the reliability of financial information. Such information is an essential factor in maintaining a healthy and normal financial market, as well as strengthening the confidence of investors, shareholders, and the public in the entities' operations and the financial market. Reliable financial information also strengthens the Central Bank's supervision of the relevant entities.
Meetings with Auditors
The Central Bank of Iceland is required to convene regular meetings with external auditors of relevant entities, according to Guidelines No. 4/2015 on the communication between the Central Bank and external auditors of supervised entities that are also public interest entities, considering factors such as size, scope of operations, and systemic importance. The Guidelines state that at the beginning and end of an audit for entities covered by the Guidelines, the Central Bank should convene regular meetings with the external auditors of the relevant entities. The purpose of these meetings is to support improved supervision and auditing and to increase the flow of information between the Central Bank and external auditors of public interest entities.
Referring to the above and Article 1.1.1 of the Guidelines, the Central Bank plans to hold annual meetings with external auditors of Arion banki hf., Íslandsbanki hf. and Landsbankinn hf., and every other year with external auditors of the pension funds Gildi Lífeyrissjóður, Lífeyrissjóður starfsmanna ríkisins, and Lífeyrissjóður verslunarmanna, and the insurance companies Sjóvá-Almennar tryggingar hf., TM hf., and Vátryggingafélag Íslands hf. Meetings will be held with external auditors of smaller entities if necessary.
[1] Commercial banks, savings banks and credit companies are considered credit institutions, cf. Article 4 of the Act on Financial Undertakings No. 161/2002. Financial undertakings other than credit institutions are considered public interest entities if their securities are listed on a regulated market.