Revision af pengeinstitutters kapitaldækning

Jens Østergaard

Student thesis: Master thesis


Credit institutions play a major role in modern economy as they serve as important service providers by executing the financial part of real economic transactions by allocating capital in a market orientated economy. It is therefore of importance that market participants has sufficient confidence in the individual financial institutions and the stability of the financial system as a whole. To ensure this confidence credit institutions are obliged to comply with rules, which has the purpose of ensuring that the credit institution always has enough capital to absorb losses. This thesis is motivated by the fact that credit institutions are subject to comply with certain rules on capital adequacy and which implications this fact has on the auditor’s work. The problem definition is stated as to analyse the requirements that the auditor is subject to as a consequence of existence of rules on capital adequacy when auditing a credit institution. The thesis is based upon the three pillars within the Basel II framework on capital adequacy. Chapter 2 is dedicated to an analysis of the three pillars and the requirements the credit institution has to comply with under each of the three pillars. The Pillar I rules have the purpose of prescribing the minimum capital requirements and how the calculations are made in detail. A principle of prudency applies but otherwise the nature of the rules is not of much difference compared to rules on accounting. Pillar II is referred to as the ICAAP/SREP. The ICAAP (Internal Capital Adequacy Assessment Process) is the process that the credit institution is obliged to obtain to reach statement of the institutions solvency need. The SREP (Supervisory Review and Evaluation Process) is the dialogue between the supervisory authorities and the credit institution on the “correct” capital requirement facing the institution due to its risk profile. Pillar III is labeled as the concept of Market Discipline. The rules require the credit institution to disclose certain aspects of its risk profile and its capital adequacy. The purpose of the rules is based upon the belief that by forcing the credit institution to disclose this information, the market will react on the disclosed information, which is supposed to discipline the credit institution to behave more prudent. Finally the chapter is analyzing how the rules on presentation of accounts are influenced by the existence of rules on capital adequacy. Especially the management’s statement of the individual solvency need and its influence on the going concern principle is of special importance. Chapter 3 analyze the explicit and implicit obligations that the auditor has to comply with, which is the specialized financial rules, the rules that generally governs the auditors and especially how the International Standards on Auditing affects the challenges that the auditor faces due to the existence of rules on capital adequacy. The thesis concludes that the auditor is required to: 1. Carry out audit on the Pillar I requirements as the actual solvency is a part of the annual report which is subject to audition. 2. Carry out audit on the individual solvency need as a consequence of the requirement of auditing the going concern assumption, but the sufficiency of the audit evidence is subject to an individual assessment. If the credit institution chooses the annual account as a medium of disclosing the solvency need, this naturally influence the extent of the audit procedures employed by the auditor. 3. The disclosure of information under the Pillar III regime does not impose further requirements on the auditor, unless the credit institution chooses the annual report as a medium of disclosing this information. If the auditor agrees on being the independent person who assesses the solvency need, the auditor must be aware of the type of audit report that follows the audit procedures. As a perspective on the thesis’s findings, especially the thoughts and methods governing the statement of the individual solvency need can with natural modifications be an inspiration for other kind of businesses and their auditors in assessing the going concern principle.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2012
Number of pages96