Basel calls for better auditing of banks

It also sent a letter to the International Auditing and Assurance Standards Board (IAASB), which calls for enhancing the International Standards on Auditing to include more authoritative guidance relating to bank audits, and setting out specific areas where the Basel Committee believes those standards should be improved.

The committee’s paper notes that the recent global financial crisis “not only revealed weaknesses in risk management, control and governance processes at banks, but also highlighted the need to improve the quality of external audits of banks.” This revised guidance is designed to bolster market confidence in the quality of the external audits of banks’ financial statements.

It proposes 16 principles that the committee believes would improve the quality of bank audits and enhance the effectiveness of prudential supervision, which will, in turn, contribute to financial stability. It also sets out expectations of how: external auditors can discharge their responsibilities more effectively; audit committees can contribute to audit quality in their oversight; an effective relationship between the auditor and regulators can provide mutually useful information; and, dialogue between the banking regulators and audit oversight bodies can enhance the quality of bank audits.

“The committee has developed guidance that builds on recent experience and will help raise the bar with regard to what supervisors expect of banks’ external auditors and audit committees. We also recognise the great importance of audit standards and are keen to support the IAASB in enhancing audit quality,” said Stefan Ingves, chairman of the Basel Committee and governor of the Sveriges Riksbank.

Comments on the proposals are due by June 21.