"AuditOne knows the ALM area inside and out. The IRR, Investment and Liquidity audits performed were very useful and exceeded our expectations."
||Our IRR audits drill into not just the standard governance and control issues,
into key aspects of IRR modeling such
as reasonableness of the underlying assumptions and back-test validation.
|Asset and Liability Management
Banks, credit unions and other financial intermediaries have larger balance sheets than most other types of business – and correspondingly larger amounts of balance sheet risk. Pricing can change, sometimes quickly, on many earning assets, as it can on interest-bearing deposits, with potential mismatches between them creating interest rate risk. In fact, balance sheet IRR exposure ranks right behind credit exposure in terms of a typical bank’s loss vulnerability.
Our IRR audits drill into not just the standard governance and control issues (e.g., the requisite policies and procedures; Board vs. ALCO vs. management roles and responsibilities) but also key aspects of the IRR modeling: the reasonableness of the underlying assumptions, for instance, and the accuracy (including back-test validation) of the model results.
Funding an institution’s assets requires careful management and control of on- vs. off-balance sheet sources, including planning for contingencies. Getting it right can quite literally determine an institution’s survival – or, more positively, its ability to create or sustain growth. A liquidity risk audit can provide the Board valuable assurances in this critical arena. There isn’t the same regulatory imperative as there is for an IRR audit, but if liquidity concerns are on the Board’s radar screen, then a liquidity audit may be worth considering.
If liquidity is the key driver of short-run survival, in the longer run it is capital. A capital management audit can help assess the effectiveness of the controls surrounding the determination of how much capital an institution requires, the recognition of contingencies, and the calculation of capital for accounting, regulatory and management purposes.
Other parts of the balance sheet are covered in our Finance & Administration audits, including investments, fixed assets, accounts payable, etc.