Basel II audit and monitoring – Supervisors rely on external auditors (and it can be risky)


Basel II is very different from Basel i. It is expected that sensitive framework links the capital structure risk and exposures are measured by banks using internal models, and advanced mathematics. To make things worse, there are new complex accounting standards, new and confusing financial instruments, and the need to mark-to-market and working for fair value estimates.

supervisors around the world have serious problems, they are more accountable and less able to understand the internal models. Today Banking Committee rely more on internal and (mostly) external auditors.

auditors have an opinion on internal control framework and accounting to comment. They must adhere to the principles-based accounting standards, to challenge the assumptions related to food and to exercise professional judgment.

Principles-based standards (in a society without principles) and not the detailed rules lead to difficult and subjective interpretations, and create a need for professional accountants, qualified to examine and understand the complex legal, accounting and scientific issues.

The European Union went one step further. A person may be approved to carry out audits only after having attained university entrance, then completed theoretical knowledge instruction, received strong practical training and passed an examination organized or recognized by the State.

8. According to the Company Law Directive of the European Union (also called the European Sarbanes Oxley), the test of theoretical knowledge covers in particular:

Accounting theory;

Accounting Principles;

legal requirements and standards;

international accounting standards

International Auditing Standards;

risk management;

internal controls;


Professional skills;

Ethics and independence standards

It should also extend to some



Law bankrupt;



commercial law;

Social security law

labor law;

Information Technology;




Financial management;

There is a minimum of practical training for three years as well in audit of annual accounts and consolidated accounts. More than two-thirds of practical training shall be completed with an audit firm approved in a Member State.

Yes, auditors with the above theoretical and practical training have the ability (and hopefully will) to exercise professional judgment. But bosses outsource its assessment of qualified professionals, and this can be dangerous.

external auditors (the knowledge and experience they have) are not trainers, and should not become trainers.


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