In the aftermath of the financial crisis, the G20’s Financial Stability Board invited auditors to play a more prominent role in assisting the FSB in its mandate to stabilize the global economy. Also, the Basel Committee on Banking Supervision issued new requirements primarily aimed at ensuring the accuracy of banks’ risk data by requiring its reconciliation to a bank’s accounting data. A series of subsequent regulatory initiatives involve auditors directly, or that point to involving them further, in the global regulatory regimes overseen by the FSB and the BCBS.
These regulatory developments draw comparisons to the U.S. Sarbanes-Oxley Act (SOX) and similar legislation enacted globally with the aim of reducing the risk of material misstatements in financial reporting.
This article considers whether the role and responsibilities of auditors framed in SOX should be extended to risk reporting, and whether accountants and auditors should participate in adjusting the financial metrics of risk to conform to the evidence of the financial crisis. That is that risk exposures were accumulating in financial institutions and were not detectable in audited financial statements. This represents both a risk quantification challenge and an accounting challenge. Accountants and auditors are being challenged by regulators to participate more fully in risk adjusting the financial system.