ICAEW has warned that banks and investors put too much confidence in key regulatory ratios designed to measure banks’ strength, as it issues new guidelines to encourage stronger auditing across the sector.
Scrutiny of banks’ figures has increased since the financial crisis, when companies that had published seemingly strong numbers encountered difficulties, leading to concerns that banks had underestimated the riskiness of their assets and overestimated how much capital they held.
High-profile reporting errors by companies such as Royal Bank of Scotland highlighted the system’s shortcomings, prompting the Prudential Regulation Authority to seek ways to increase confidence in capital measures.
The ICAEW will launch a framework for banks and auditors on Monday, but it backed down from earlier proposals to use a standardised scope across different companies after pressure from banks. The framework provides guidance for auditors on how to assess banks’ reporting processes, including governance standards, internal controls, IT and testing.
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ICAEW’s framework for assuring bank regulatory ratios
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