The ICAEW has issued its framework for auditing bank capital numbers with the aim of meeting banking regulatory ratios, including capital, liquidity and leverage ratios, while also being of use to audit committees and others that commission relevant assurance work
The ICAEW assurance framework technical release: TECH 03/17/FSF states: ‘As it is a modular framework, it is not necessary to provide assurance across the entire regulatory ratio generation process when following this guidance. The scope of the assignment can be tailored to user needs.’
The guidance can help with:
- scoping assurance work;
- identifying areas of potential complexity which should be taken into account;
- considering materiality levels;
- planning and performing the work; and
- reporting upon work performed.
Michael Izza, chief executive at ICAEW, said: ‘The guidance proposes a modular framework, reflecting the range of circumstances in which assurance work may be provided. It is intended to provide flexibility for users and is neutral to the type of work being performed and who performs it.
‘This means that although the framework has been designed for banks, it can also be applied to other businesses facing prudential regulation, such as investment firms. It has been developed for international use, and is not specific to a particular jurisdiction or regulatory regime.’
Banks and their stakeholders need to have confidence in the processes and governance surrounding the production of regulatory ratios and developments since the financial crisis have highlighted this.
The guidance is not a requirement for assurance but proposes a framework for firms to follow when undertaking audit activity. The framework says ‘It is intended to help both those commissioning and those providing assurance, inscoping and performing an engagement, whether on a voluntary basis or required by regulation.’
Iain Coke, head of ICAEW’s financial services faculty, said: ‘Capital ratios are one of the most important ways to assess a bank’s stability, but they are not audited. It is absolutely crucial that people can have confidence in them. This is why the Prudential Regulatory Authority asked us in 2014 to look at how independent assurance could deliver that confidence.
‘Today’s publication represents culmination of that project. Using this framework would mean the public, regulators and banks themselves can have more trust in these numbers.’
The ICAEW assurance framework technical release: TECH 03/17/FSF is available here.
