Ralf Bose Cief Executive Director, Auditor Oversight Body Germany Chair Committee of European Auditing Oversight Bodies (CEAOB)

Transcription

1 Key International Developments Panel Consistent views and inspection methodologies in the EU with a focus on the financial services area and risks seen by european prudential regulators Ralf Bose Cief Executive Director, Auditor Oversight Body Germany Chair Committee of European Auditing Oversight Bodies (CEAOB) PCAOB International Institute on Audit Regulation Washington, December 2017

2 Disclaimer The views expressed are my own and do not necessarily reflect the views of the PCAOB, Board members, or staff as well as of the German Auditor Oversight Body, the CEAOB or its members and staff respectively. 2

3 CEAOB Committee of European Auditing Oversight Bodies Presentation Structure: 1. CEAOB Mission and Tasks 2. CEAOB Structure and Sub-groups 3. CEAOB Inspection Sub-group 4. CEAOB Financial Services Task Force 5. Areas of Concern of European Audit and Prudential Regulators 6. Contact Details 3

4 1. CEAOB Mission and Tasks Mission Enhancing investor confidence by improving audit quality Promoting common understanding and consistent application of ARD* Tasks Promoting common understanding of inspections methodologies, international standards framework and enforcement processes Providing framework for cooperation among national competent authorities (NCAs) Facilitating the exchange of information, expertise and best practices for the implementation of ARD* Intensification of dialogue with stakeholders about audit quality Enhancing dialogue with audit networks * Audit Regulation and Directive 4

5 2. CEAOB Structure Consultative Group provides advice Chair Secretariat Vice-Chair appoints provides EU-Commission elects CEAOB Plenary Meeting 28 Member-States + ESMA invited to attend Observers EBA EIOPA Colleges (Art. 32 Reg.) I IAS E M IEA EEA* Non-EU/Non-EEA* * European Economic Area countries competent authorities 5

6 3. Inspections Sub-group (1) Tasks Enhancement of the cooperation and consistency on the subject of inspection activities Effective communication with the audit firms/networks Current workstreams and achievements Inspection Findings Database Further development of Findings Database Sharing and discussing inspection findings through analysis of the findings database with the audit firms (cooperation with colleges) and dialogue with standard setters and (prudential) regulators 6

7 3. Inspections Sub-group (2) Current workstreams and achievements (cont.) Common audit inspection methodology (CAIM) Continuation of developing CAIM, including widening the scope of its activities and the detailed inspection programs for use by CEAOB Members Improving the consistency of inspection practices Communicating with audit firms ongoing dialogue with the audit profession, especially on networks initiatives in improving audit quality focus on the largest European networks of audit firms in cooperation with colleges 7

8 3. Inspections Sub-group (3) Current workstreams and achievements (cont.) Specific issues of small regulators (smaller regulators task force) Creation of a specialist database Enable inbound and outbound secondments between inspection teams Organise common trainings amongst inspection teams IT-specific issues (IT specialists task force) Discussing inspection concerns (notably on data analytics and big data developments) and findings Sharing experiences to ensure a consistent approach Financial Services Task Force (FS-Task Force) See separate slide 8

9 4. CEAOB Financial Services Task Force (1) Tasks Coordinating any activities regarding inspections of audits in the financial services industry and improving audit quality in that area Current workstreams and achievements Analysis of banking and insurance related findings in CEAOB s inspection findings database Analysis for improving audit quality and monitoring trends in findings, sharing experiences, basis for IFIAR inspection workshops, stakeholder dialogue (standard setters, supervisory authorities, audit firms, EBA, EIOPA, FSB, Basel Committee etc) 9

10 4. CEAOB Financial Services Task Force (2) Current workstreams and achievements (cont.) CAIM support Review of CAIM inspection programs regarding specifics of financial services industry Liaison with CEAOB IAS regarding FS specific input to comment letters for new audit standards (ISA 540 in 2017) Coordinating activities regarding inspection of financialservices audits Determination and performance of thematic reviews /surveys Survey on materiality considerations in banks and insurance audits Survey on regulatory inspections Survey on current national approaches on communication/dialogue between auditors, national banking regulators and audit oversight bodies 10

11 4. CEAOB Financial Services Task Force (3) Current workstreams and achievements (cont.) Preparation of IFIAR Workshops for insurance and advanced banking Inspectors Planning and organisation of the annual meeting with the ESRB (Article 12 Reg.) see next slide 11

12 5. Areas of Concern of European Audit and Prudential Regulators (1) 24 November 2017: First annual meeting of ESRB, CEAOB and auditors of G-SIFIs Organised by CEAOB Financial Services Task Force ESRB European Systemic Risk Board macroprudential oversight of EU financial system, prevention and mitigation of systemic risk in the financial sector (ECB, EBA, EIOPA, ESMA etc.) Key developments discussed: IFRS 9 Interest rate risk in the banking book Solvency II (european rules for capital requirements for insurance undetakings) Inspection findings of european audit regulators in audit engagement files of listed financial institutions 12

13 5. Areas of Concern of European Audit and Prudential Regulators IFRS 9 (2) High level of complexity Models, Disclosures, Parameters, Sensitivity External service providers for preparation, implementation, review Comparability and consistency internal versus standard models Requirements of prudential regulators Across different countries and subsidiaries Implementation projects Management of transition from IAS 39 Business operating model Control framework (Risk management, accounting, regulatory processes) Traditionally Inhomogenious IT architecture Management estimates Time constraints Future refinements Audit firms (and audit oversight) Identification and understanding of estimates Controls over estimates Challenge of management Independence (kind and size of services) Auditor s report (KAM) Attention: Non-financial services industries 13

14 5. Areas of Concern of European Audit and Prudential Regulators Interest Rate Risk in the banking book (3) Non-trading book Managing maturity and rate mismatches Covers all interest bearing positions of the bank Changes in interest rates have a significant impact on net income and valuation New BCBS standards for management, disclosure and capital adequacy for those books Issues: Complexity, models, accounting (hedges) etc. (see IFRS) Beyound technical aspects: Low interest rate environment could lead to (not only in banks): Business models adjusted/refined Investments in less liquid or higher risk assets (equity, properties, PE, VC, infrastructure) Higher net risk positions in banking books Withdrawal from certain businesses (run off portfolios in life insurance) Increase in volumes Vulnerability for sudden interest rate moves Accounting strategies (hedge accounting, valuation models, judgements) 14

15 6. Contact Details Contact details Ralf Bose CEAOB Chair: Chief Executive Director of the German 15

16 Thank you for your attention! 16