Reliability prudential reporting

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Reliability prudential

reporting

Perspectives from

an external auditor

DNB Seminar, 12 December 2012

Dick Korf

Background

Recently highlighted by DNB following a cross sector investigation in 2012

“the quality of prudential reporting and related financial reporting controls

need sector wide improvement,

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Preparation

The bank as preparer

DNB

The supervisor as user

and regulator

External audit

The auditor as

assurance provider

Agenda

Three areas

Preparation – the bank as preparer

Observations

■

Requirements are demanding, changing and ever increasing

■

Much attention and time spent to maintain sound B2 reporting and make improvements

where needed

■

Substantial overhauls and investments are made in preparing for B3

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Preparation – the bank as preparer

Observations

■

Requirements are demanding, changing and ever increasing

■

Much attention and time spent to maintain sound B2 reporting and make improvements

where needed

■

Substantial overhauls and investments are made in preparing for B3

–

Against the background of tightening capital and liquidity requirements

Best practice

Prudential reporting forms an integral part of the management cycle and related financial

reporting processes subject to the same governance and financial reporting controls with

similar engagement and ownership of senior management and the business.

The profile of prudential reporting within banks

It is time to lift the profile of prudential reporting in banks

Best practice

Prudential reporting forms an integral part of the management cycle and financial reporting

processes and is subject to the same governance and financial reporting controls with

similar engagement and ownership of senior management and the business.

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Lifting the profile of regulatory reporting beyond the finance department

Please ask yourself does your bank or client

■

Adopt such an integrated approach?

■

Are the prudential returns given similar attention as management reporting and financial

reporting?

■

And subject to similar closing and sign off procedures?

■

Are the returns tabled for board meetings?

■

Does key management understand what the reported numbers represent – other than

the ratio’s?

■

Or are the ratio’s discussed and reported only?

Why is this relevant?

A first step: more meaningful internal reporting

■

The returns are not self explanatory nor ‘easy to digest and understand’ other than by the

finance specialists themselves

■

Returns are technical by nature and designed for DNB needs only….

■

The use of IRB/ AIRB modelling makes the returns less transparent with

interdependencies between finance and risk

■

The returns do not form a complete set of financial information

–

Basis of preparation is missing

–

There are no notes, no comparatives etc

–

There is no requirement to highlight ‘interpretations’ or ‘choices’ made by the

institutions

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DNB and prudential reporting

Observations

■

Requirements are demanding, changing and ever increasing

■

DNB is getting increasingly critical on the quality of reporting

■

As indeed DNB found discrepancies and mistakes so have a right to speak

Recommendations

■

There are limits to what a bank can absorb as additional reporting requirements within a

certain timeframe – be realistic, set priorities

■

The rules are complex – make them better accessible

■

Provide feedback on prudential reporting findings to the external auditor

Recommendations to DNB

Limitation to what a bank can absorb within a certain timeframe

■

Be vigilant and responsive to practical dilemma’s with realistic priority setting:

relevance versus cost, timeliness and reliability

Rules are already complex – provide better access

■

Simplify Open Boek Toezicht: make it more user friendly plus further clarification to ‘legal

language’

■

Provide direct access to a complete set of reporting requirements for each prudential

return – we miss the Handboek Wtk

Feedback to the external auditor

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The external auditor

Observations

■

Scope of the audit is fragmented: parts are audited, parts are not

■

Approach to model based reporting is contra intuitive: only partially in scope

■

No specific assurance on quality of processes: only certification of some of the returns