Practice Guide: Auditing Credit Risk Management

Regulators across the globe are focused on financial services organizations’ credit risk management activities. Moreover, regulators and supervisors consider managing credit risk one of the pillars required to maintain a robust and solvent financial sector, which in turn encourages a steady economic condition. Given the complexity and importance of managing credit risk within a financial services organization, this guidance will focus on credit risk arising from a financial services firm’s lending practices. After reading this guidance, internal auditors will: Understand the importance of credit risk in a financial services context. Understand the regulatory environment and requirements related to credit risk. Understand the risk governance and risk management processes surrounding credit risk. Describe the nature and basis of measurement of the probability of default. Design an audit engagement that assesses the appropriateness and effectiveness of the credit risk management framework and the adequacy of the institution’s credit profile. Be able to apply IPPF and risk-based internal audit techniques to assess and audit credit risk in their organization.