Practice Guide: Auditing Capital Adequacy and Stress Testing for Banks

The Basel Committee on Banking Supervision (BCBS) strengthened capital adequacy guidelines following several global financial crises. If observed, banking institutions should be able to absorb the volatility of potential credit, market, and operational risks in the wake of another serious market shift.

This new practice guide, developed for financial services auditors but useful to any auditor working with statistical models and capital, focuses on how to provide assurance that an institution is well capitalized to meet the guidelines and prepared for cyclical business changes. This guide will help readers understand, measure, and assess the appropriateness and completeness of an institution’s capital planning process.

Topics include:

• How to evaluate whether capital processes support the institution’s stated risk appetite.
• Strategies and methods to model credit, market, and operational risk.
• Audit tools and techniques.

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