BA2 - Risk-based Auditing for Reserves Management Operations    

Course Objectives

This outline sets out the programme for a 4 day Risk-based Auditing for Reserves  Management Operations course using best practice techniques.  The course aims to enhance auditors’ understanding and appreciation of central bank foreign exchange reserves management operations and risks and risk management operations relevant to fund investment operations. It will also equip participants with practical frameworks and tools for conducting risk-based audits of central bank operations focusing on foreign exchange reserves management operations.

By the end of the course, delegates will be able to define and implement:

•     Management oversight and the internal control framework in financial institutions

•     Developing a risk management culture in financial institutions

•     Risk management process – For Central Bank operations

•     Risk management as a process, integrating audit into the risk management strategy

•     Risk-based auditing

•     Internal audit as a value adding function

•     Accounting issues in investment management operations

•     Effective audit report writing

•      Introduction to systems audits

Day 1

Central Bank foreign exchange reserves management operations

•     Objectives of reserves management – reasons for holding and managing reserves

•     A process approach to reserves management operations

•     Principles for central bank foreign exchange reserves management

•     Progress made so far in reserves management operations in the region

•     Challenges facing reserves management operations

Risks and risk management tools and techniques in foreign exchange reserves management operations

•     What is risk and why is it important for asset managers?

•     Identifying risk and risk analysis

•     Financial and Market Risks – Currency risk; Interest rate risk; Credit risk; Liquidity risk

•     Operational and Business environment risks

•     Developing an appropriate risk management framework

•     Key risk management techniques in financial market operations

Risks inherent in central bank reserves management operations

•     Market risks - Liquidity risk, Credit risk

•     Operational risks

•     Sovereign risk

•     Compliance risk

•     Reputation risk

•     Corporate governance risk

•     Strategic risk

     Benchmarks in investment operations

•     What is a benchmark

•     Benchmarks as risk management tools

•     Typical benchmarks in central bank reserves management operations

Day 2

Assessing risks and Internal Control in Treasury Operations

•     Risk considerations

•     Financial statements Analysis

•     Internal controls (Structure, Concepts & Objectives)

•     Control focus

•     Limitations of internal control

•     Documenting and evaluating internal controls

Pricing Fixed Income Instruments

•     The zero coupon bond

•     Price sensitivity and its determinants (coupon rate, maturity, yield)

•     Measures of price sensitivity

•     Pricing annual and semi-annual coupon fixed rate bonds using yield to maturity

Introduction to Quantitative Applications for Finance

•     Statistical concepts (mean, alpha, beta, etc)

•     Simple interest and compound interest calculations

•     Time value of money – Compounding; Discounting; Bond market conventions; Day count conventions; Break-even calculations

•     Fixed income concepts – pricing bonds, bond cash-flows, accrued interest, clean price & dirty price, yield vs. price, term structure of interest rates

 Day 3

Delegation of Authority and Institutional Framework for Central Bank Investment Operations

•     Independence & segregation of duties

•     Delegation of authority

•     Reporting lines

•     Internal control framework

Management oversight and the internal control framework in financial institutions

•     Management Oversight – Duties and Responsibilities of the Board and Senior Management, Board and Management Committees

•     Evaluation of Management Performance

•     Sound Corporate Governance Practices

•     Corporate Governance Audit Process

•     Internal Control Framework

     Developing a risk management culture in financial institutions

•     Risk management strategy

•     The risk management function

•     Risk measurement, reporting and control

•     Risk management systems

•     Level of risk awareness in Central Banks

Risk Management Process – For central bank operations

•     Risk Drivers, Risk Appetite

•     Risk identification and evaluation

•     Risk rating framework

•     Risk Reporting

     Risk management as a process, integrating audit into a risk management strategy

•     Concept of risk management. Who is responsible for risk management

•     Concept of risk control. Who is responsible for risk control

•     Distinction between risk management and risk control

•     Developing a risk management culture in financial institutions

•     Risk management strategy and systems

•     The risk matrix

 Day 4

Risk-based auditing

•     What is risk-based auditing?

•     Key components of a risk-based auditing framework

•     Generally accepted risk principles (GARP)

•     Integrated Control Framework (COSO)

•     Overview of risk focused methodology                                                                                                                                                       

 Auditing the portfolio investment process and risk systems

•     Objectives of the investment portfolio

•     Need for an investment policy

•     Delegation of authority and management’s responsibility for monitoring the portfolio

•     Identifying the business risk

•     Auditing the controls

•     Auditing External Fund Managers

 Accounting Issues in reserves management operations

•     Realized and unrealized gains/losses

•     Accounting for financial instruments – IAS 39

•     Portfolio reporting versus financial reporting for treasury  operations                                                                                                                                                          

Effective Audit Report Writing

•     Internal Audit Standards – Internal Auditing Standard 430

•     Objectives of an audit report

•     Audit reporting structure – features of a good audit report

•     Making the most of audit results

•     Audit’s contribution to managing change

•     Issue tracking

Bankers, Accountants, Auditors and consultants who are required to understand Risk-based Auditing for Reserves  Management Operations in the course of their duties.  In addition, corporate financial managers will find it beneficial.