Governance and Auditing in a Public Interest Context Principles of Auditing: An Introduction to International Standards on Auditing - Ch 14 Appendix B - PowerPoint PPT Presentation

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Governance and Auditing in a Public Interest Context Principles of Auditing: An Introduction to International Standards on Auditing - Ch 14 Appendix B

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Title: Governance and Auditing in a Public Interest Context Principles of Auditing: An Introduction to International Standards on Auditing - Ch 14 Appendix B


1
Governance and Auditing in a Public Interest
ContextPrinciples of Auditing An Introduction
to International Standards on Auditing - Ch 14
Appendix B
  • Rick Stephan Hayes,
  • Roger Dassen, Arnold Schilder,
  • Philip Wallage

2
The Example of Bank Auditing and its Relation to
Banking Supervision
  • PrincipalAgent Relationship.
  • Shareholders have appointed a board of directors
    who govern a company on their behalf. The board
    is responsible for arranging appropriate
    management of the company and faithfully
    reporting the results to the shareholders.
  • Information asymmetry between principals and
    agents calls for the basic function of the
    auditor.
  • With banks everyone who has an interest in the
    stability of the financial system (public
    interest) are the principles
  • As everybody is a principal to an interrelated
    complex of agents, the expectation that auditors
    could reduce the information asymmetry
    sufficiently is modified.

3
International Auditing Practice Statement 1004
(IAPS 1004)
  • Issued by Basel Committee on Banking Supervision
    and International Auditing Practices Committee
  • Describes the roles and responsibilities of a
    banks board of directors and management, the
    banks internal and external auditors, and the
    banking supervisors
  • Sets out the primary responsibility of the board
    of directors and management.
  • Examines the essential features of the role of
    external auditors and banking supervisors.
  • reviews the relationship between
  • the banking supervisor and the banks external
    auditor

4
The Responsibilities of Banks Board of Directors
and Management
  • Those who are charged with the governance of the
    bank should insure
  • those entrusted with banking tasks have
    sufficient expertise and integrity
  • adequate policies, practices and procedures
    related to the different activities of the bank
    are established and complied with
  • appropriate management information systems
  • appropriate risk management policies and
    procedures
  • statutory and regulatory directives, including
    directives regarding solvency and liquidity, are
    observed
  • the interests not only of the shareholders but
    also of the depositors and other creditors are
    adequately protected

5
Role of the Banks External Auditor and of the
Banking Supervisor
  • Characteristics that distinguish banks
  • Role of the banking supervisor
  • key objective or prudential supervision is to
    maintain stability and confidence in the
    financial system, thereby reducing the risk of
    loss to depositors and other creditors.
  • Banking license
  • Lists the basic requirements for a banking
    license ordinarily found in most systems
  • Capital base accord adequate capital base
  • Bank risks credit risk, market risk, liquidity
    risk, operational risk, legal risk, and
    reputational risk.
  • Supervisors efforts

6
Relationship Between Banking Supervisor and
External Auditor
  • The supervisor monitors the present and future
    viability of banks and uses their financial
    statements in assessing their condition and
    performance. The external auditor is primarily
    concerned with reporting on the banks financial
    statements.
  • The supervisor is concerned with the maintenance
    of a sound system of internal control and the
    external auditor is concerned with the assessment
    of internal control.
  • Both must be satisfied that there are adequate
    records, banking supervisor to determine
    profitability and the external auditor with
    material misstatements.

7
Governance Communications
  • Audit matters that need reporting include only
    those matters that have come to the attention of
    the auditor as a result of the performance of the
    audit.
  • Certain audit matters of governance interest are
    likely to be of interest to banking supervisors,
    particularly where those matters may require
    urgent action by the supervisor.
  • When required by the supervisory, legal, or
    regulatory framework, or by a formal agreement or
    protocol, auditors communicate directly to the
    banking supervisor
  • The auditor considers communicating such matters
    to the banking supervisor when management or
    those charged with governance do not do so.

8
Thank You for Your Attention
  • Any Questions?
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