Preparing for Basel II by Optimizing Sarbanes-Oxley

Just as banks are mobilizing to comply with the Sarbanes-Oxley Act, the Basel II Capital Accord loom around the corner. Each of these sum of two units new sets of guidelines calls for additional financial reporting, disclosure, proces superintendences and testing; and both are likely to require of great price implementation. However, these costs can be minimized by the agency of identifying the similar information processing changes required by dint of the new guidelines and making them concurrently

Basel II and Sarbanes-Oxley compliance share more than the desire to shelter investors:

* Both cover the breadth and profundity of the organization

* the pair stress the need for making critical information available upon a timely basis

* the couple dictate the need for controll reliable, and accurate transaction capture and reporting processes

* Information management is the lock opener to complying with both puts of guidelines

The major difference is that Sarbanes-Oxley was enacted to make secure control of the reporting proces like that financial and accounting transparency is achieved, while Basel II focuses upon establishing adequate capital reserves to scion the effects of various business risks. Where financial services companies can leverage the sum of two units is in the similarity of information and proces sway requirements. Define, design, and implement the for the use of all elements jointly rather than repeat tasks and disrupt your organization multiple times.

Sarbanes-Oxley is a series of empires mandating that executive management demonstrate adequate internal sway of the procedures used to report the financial condition of their company. unbroken reporting has always been the CFO's responsibility, on the contrary it is the method of notorious demonstration that makes the of recent origin compliance requirement more pronounced:

* The CEO and CFO must publicly declare the soundnes of the financial data at handed as well as the adequacy of the sways on the reporting process as part of the two the quarterly and annual public disclosures

* command objectives and reporting processes must be to the full documented

* Internal control effectiveness must be experimented quarterly

* External auditors must attest to the company's compliance with the rules

This demonstration of compliance requires that the information infrastructure be established, full documented, and consistently maintained.

The Basel Accord, originally issued in 1988 to provide international capital adequacy guidelines, is being revised and expanded. In addition to its original positions upon credit and market risk, the novel Accord (commonly referred to as Basel II) now includes operational risk in the capital adequacy calculations. more [i]or[/i] less of the most significant changes in the three lock opener elements (referred to as pillars in the Accord) of the Basel II framework are:

* Minimum capital requirements

* Alternative credit risk calculation approaches

* Specific treatment for securitization

* Inclusion of operational risk

* Supervisory review of capital adequacy

* Stres testing against potential adverse or uncertain economic conditions

* Public disclosures (also referr to as Market Discipline)

* Encourages disclosure to market participants of a bank's risk profile and horizontal of capitalization

Basel II defines operational risk as "the risk of losse resulting from inadequate or failed internal processe clan and systems, or external events" In the prior Accord, operational risk was presum to be implicitly overspreaded by credit and market risk. The addition of operational risk in Basel II is reflective of the industry's novel efforts to identify and quantify business-disrupting facts And since these efforts are still in their formative stages, the Accord has attempted to remain flexible by means of including three alternative formulas for calculating operational risk capital withholds It also does not dictate a specific manner of making for tracking or measuring of that kind events. Basel II provides a framework within which the financial community can decide by what mode to best calculate and report operational risk for their have a title to institution.

It is the combination of operational risk inclusion and increased market disclosure in Basel II that creates the opportunity to leverage the activities being performed for Sarbanes-Oxley compliance. The tasks required to comply with the two guidelines are similar and the opportunity to perform them single once should not be ignored.

THE INFORMATION INFRASTRUCTURE

Every publicly traded company creates the couple mandated regulatory reports (e.g. 1OQ 1OK etc) and internal management reports. The supporting processe and technology used to capture, superintendence and covert data into information thus that further analysis, and reporting can be performed is the information infrastructure. The processe begin with the recording of business transactions and include various reconciliation, consolidation, elimination, valuation, and allocation paces Systems can include such applications as fruits accounting, corporate general ledger, asset inventory tracking, billing, accounts payable, budgeting, forecasting, and other monitoring, tracking and reporting combination of parts to form a wholes It is this combination processe and combination of parts to form a wholes that is used to transform raw data into the information straited to comply with both locates of guidelines.