Guidelines released by US regulatory authorities have provided large banks with new standards for testing loan portfolio strength. Bank internal audit teams possess responsibility for implementing these elements. A bank’s outside independent auditors will still utilize conventional audit techniques that accountants sharpen during CPA preparation courses.
The new guidelines are intended for self-testing by banks with more than $10 billion of assets. This action by regulators emphasizes the importance of internal governance. Consequently, banks are engaged in a vital process of hiring skilled accountants following their completion of study for CPA credentials. Strong internal audit staff is expected to alert senior bank management to potential problems.
Ongoing risk management is a primary objective for maintaining a sound banking system. No longer will banks only identify significant trouble upon annual external audit. Instead, individuals with the same talents as outside auditors are expected to work inside an organization. Accountants utilizing abilities demonstrated from study for CPA exam completion are more useful providing support within a bank.
Guidance rendered by regulatory authorities is aimed at managing risk with forward-looking assessments. A range of outcomes is determined. Especially notable is the potential damage of adverse economic events. This means that internal bank auditors will provide significantly important information. To accomplish this, the accountants are asked to deploy the same financial scenario assessments utilized to answer CPA exam questions.
The new guidelines are different than the stress-testing requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Also, the measures are distinctive from annual capital requirement testing performed by the Federal Reserve. According to the regulators involved, those procedures have separate implementation.
The fresh initiatives build upon previously released guidance about the usefulness of stress testing in risk management. Input about stress testing resulted in formulating a framework for execution of internal controls.
Armed with this guidance, accountants employ their CPA preparation knowledge toward various bank stress testing approaches. In addition, the new regulatory outline provides these internal auditors with a process for deployment of stress testing at various levels throughout a bank. The guidance also describes the importance of internal testing for capital and liquidity planning. Plain language that banks with more than $10 billion of assets have an increased need for CPA talent on internal audit staffs.
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