LAW OF THE AZERBAIJAN REPUBLIC

of May 22, 2007 No. 332-IIIG

About internal audit

This Law for the purpose of increase in effective management of business entities in the Azerbaijan Republic determines the legal basis of the organization and activities of service of internal audit, the right and obligation of internal auditors.

Section I. General provisions

Article 1. Basic concepts

1.0. The concepts used in this Law designate the following:

1.0.1. internal audit - the objective, guaranteeing and consulting activities giving help to business entity in achievement of the purposes in case of systematic approach to the risk management directed to increase in development and rationality of activities of business entity to assessment and development of efficiency of control and management;

1.0.2. service of internal audit - the structural division performing in business entity activities for internal audit (Auditing committee, department, department, division, the internal auditor);

1.0.3. relevant organ of the management managing subjektavysshy governing body (The board of directors and the Supervisory board) and the Governing body exercising control in business entity;

1.0.4. Auditing committee - the structural division created in business entity according to this Law responsible for preparation, implementation of policy and strategy for internal audit and the organization of audit control;

1.0.5. the internal auditor - the employee of service of internal audit performing internal audit;

1.0.6. The Institute of Internal Auditors (IIA) - the professional association leading work on the international certification, training, studying and preparation of special instructions as internal audit;

1.0.7.standarty internal audit - the regulating documents approved by Board according to standards of internal audit of Institute of internal auditors which regulate internal control systems and activities of service of internal audit.

Article 2. Scope of the Law

2.1. This Law is applied to all business entities performing activities in the territory of the Azerbaijan Republic and being object of statutory audit, regardless of pattern of ownership and legal form.

2.2. Provisions of this Law can be applied by other business entities, not the stipulated in Article 2.1 presents of the Law, based on the principle of voluntariness.

2.3. If special requirements to internal audit of business entities are provided in the legislation, then this Law is applied taking into account these requirements.

Section II. Organization of internal audit

Article 3. Obligations of relevant organ of the management responsible for the organization of service of internal audit

3.1. Relevant organ of management of business entity:

3.1.1. appoints to position and dismisses the head of service of internal audit and internal auditors (members of Auditing committee);

3.1.2. approves the Provision of service of internal audit;

3.1.3. approves plans of internal audit, and also distribution of obligations of internal auditors;

3.1.4. determines policy and the strategy of internal audit and provides their implementation;

3.1.5. creates necessary conditions for implementation of auditor activities;

3.1.6. takes adequate measures for elimination of the defects and shortcomings revealed by service of internal audit;

3.1.7. makes decisions in connection with implementation of the reasonable offers provided in the report of service of internal audit.

3.2. During creation of Auditing committee in business entity this body carries out the obligations provided in articles 3.1.2-3.1.4 of this Law.

Article 4. Obligations of service of internal audit

4.1. Obligations of service of internal audit following:

4.1.1. determination of efficiency and adequacy of internal control system, created for the purpose of ensuring regular and effective activities in business entity, risk managements for goal achievement, bystry reaction to any changes;

4.1.2. check of correctness and reliability of financial accounting and financial statements;

4.1.3. assessment of rationality of expenses of business entity;

4.1.4. check of compliance of activities of the structural divisions of business entity subordinated to it the companies and the organizations (its affiliated managing societies) to regulatory legal acts and the approved plan of activities;

4.1.5. assessment of rationality, correctness of use of reserves, control of their use and sufficiency of their protection against damage.

4.2. The auditing committee is, as a rule, created in structures of social significance and carries out the following obligations:

4.2.1. determines policy and the strategy of internal audit in business entity, approves plans of internal audit and controls activities of internal audit;

4.2.2. approves job descriptions, programs of the head and the staff of service of internal audit, reports of internal audit, the recommendation about enhancement of the control system;

4.2.3. represents offers to relevant organ of management concerning creation and studying of internal control system, enhancement of internal control system and risk management;

4.2.4. represents offers to relevant organ of management in connection with purpose of external audit;

4.2.5. obtains information from executive bodies of business entity on condition of accomplishment of the recommendations provided by external and internal auditors concerning internal control system;

4.2.6. determines spheres with high financial risk and receives assurance from executive bodies of business entities about their rational management;

4.2.7. discusses the falsification facts, defects and shortcomings revealed as a result of external and internal audit or other checks and represents to relevant organ of management the offers for their elimination;

4.2.8. considers legal issues which can influence considerably financial statements, and represents the recommendations;

4.2.9. controls process of preparation of annual and running financial statements of the company and their results;

4.2.10. provides carrying out discussion of the recommendations provided by internal auditors as a result of audit;

4.2.11. involves the relevant executive bodies of business entity in execution of the recommendations provided by internal auditors.

4.3. In stipulated by the legislation cases of obligation of Auditing committee, the stipulated in Clause 4.2 presents of the Law, are carried out by Audit committee of business entity.

Article 5. Independence of service of internal audit

5.1. Except for stipulated by the legislation cases, the service of internal audit is independent in planning of the work, carrying out internal audit and preparation of reports in connection with audit.

5.2. The service of internal audit cannot be involved in the works which are within the competence of executive bodies of business entity and also in preparation or execution of the programs and projects which are not within its competence.

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