ICAEW publishes Discussion Paper on assurance over bank capital numbers

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30 Jul, 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a Discussion Paper calling for auditors to be ready to provide independent assurance over bank capital numbers. The paper, which discusses the nature and extent of assurance to be provided, is the first stage in an ICAEW project to design an assurance framework for banks’ capital information.

Regulatory capital ratios are key measures of a bank’s safety and soundness and are among the most important balance sheet measures that banks produce. The focus on them has increased since the financial crisis. They are derived from complex calculations using data from a number of sources and a variety of judgements on this data. They are important measures used by regulators, investors, creditors and other stakeholders. It is therefore important that banks and these users have confidence in the robustness of controls, processes and governance surrounding the production of these capital ratios; something that the ICAEW Discussion Paper suggests that external assurance from auditors can contribute towards.

The Discussion Paper Reporting on regulatory capital: choices for assurance :

  • sets out the potential benefits of assurance over bank capital ratios and risk-weighted assets; and
  • discusses the issues involved in designing an assurance engagement on capital ratios and related information. These issues include assurance reporting issues and scoping issues.

The ICAEW intends to develop a standard scope for an assurance report over regulatory capital so that banks can obtain assurance on a consistent basis. However, it is not proposing a requirement for banks to obtain such assurance; this, it suggests, should be derived from market demand.

Comments on the Discussion Paper are requested by 16 October 2015.  Following the responses the ICAEW intends to issue an Exposure Draft of guidance on assurance reports on regulatory capital towards the end of 2015 with guidance following in 2016.

The full Discussion Paper is available on the ICAEW website.

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