Reliable Financial Reporting and Internal Control: A Global Implementation Guide Book

Part 1	Internal Control and Global Accounting Standards
1	The Board's Accountability for Internal Control	3
	Globalization and Consolidation Involve Risks, Not Only Opportunities	4
	The Synergy between Internal Control and Risk Management	8
	Formal and Informal Solutions to Internal Control Challenges	12
	Financial Staying Power Requires a Rigorous Internal Control Culture	16
	Transparency Is Vital to the Sustenance of Personal Accountability	19
2	International Accounting Standards and the Global Accounting System	25
	The Choice of Accounting Standards on a Global Basis	26
	International Accounting Standards and Generally Accepted Accounting Principles	29
	Differences between Versions of Generally Accepted Accounting Principles and Practices	33
	Capital Markets, NYSE, and Global Accounting Standards	36
	The Basle Committee and International Accounting Harmonization	39
	The Rigorous Nature of American Accounting Standards Is Good for Companies	41
3	Why Global Accounting Solutions Are an Integral Part of Capital Markets and Derivatives Markets	45
	Accounting Profession and Fault Line Dividing Securities Regulation in Different Countries	46
	Why the New Accounting Standards Must Fully Reflect Off-Balance Sheet Exposure	49
	Derivative Financial Instruments and Analysis of Annual Reports	53
	Internally Generated Intangible Assets	57
	Management Accountability and the Need for a Rigorous Global Accounting System	59
	Technology, Derivative Financial Instruments, and the Need for Real-Time Response	62
Part 2	Coso, Behavioral Analysis, Quality Control, and Statements of Financial Accounting Standards
4	The Work Done by the Treadway Commission	67
	The Control Environment Defined by COSO	68
	Issues Involved in Fraudulent Financial Reporting	70
	Internal Control and the Treadway Commission	72
	Implementing the COSO System	74
	Benefits from Implementation of COSO	77
5	Control of Fraudulent Financial Reporting	81
	Three Phases of COSO's Contribution to Reliable Reporting	82
	Treadway Commission's Guidelines for the Audit of Management Reports	84
	The Need for Reliable Financial Information Made Public	87
	The Command and Control System of Financial Operations	89
	Setting Standards and Controlling Compliance through Off-Site Inspection	91
6	The Emphasis COSO, COCO, and IOSCO Place on Behavioral Controls	95
	Dependable Financial Reporting and Behavioral Controls	96
	IOSCO Emphasizes the Influence of Human Factors	99
	Approaches to the Prediction of Human Reliability	101
	The Impact of Human Factors on Error Rates	103
	An Analytical Approach to Performance Measurements	105
	Learning through Interdisciplinary Cross-Fertilization	107
7	Measuring and Managing the Quality of Financial Services	111
	Financial Instruments Whose Quality Must Be Controlled	112
	Qualitative and Quantitative Disclosures by Financial Institutions	115
	The Quality Control Inquiry Committee and Use of Process Control in Banking	117
	What Management Should Appreciate about Control over Quality	119
	The Role of Statistical Investigation in Quality Assurance	122
	Types of Statistical Quality Control Plans	124
8	Using Statistical Quality Control in Banking	127
	Concepts Underpinning the Application of Sampling Plans	128
	Benefits Provided by the Operating Characteristics Curve	132
	The Notion of an Acceptable Quality Level	135
	Developing and Using Quality Control Charts by Variables	136
	Quality Charts for the Number of Defects per Unit	140
	Plotting Percent Defective for Quality Control Reasons	142
9	Statements by the Financial Accounting Standards Board and Regulatory Reporting Practices	147
	Regulations Should Provide Investors with Greater Transparency	148
	Reporting Comprehensive Income: SFAS 130, 131, and 132	151
	The Evolving Nature of Financial Statements and Reporting Requirements	153
	Disclosure Rules by the Financial Accounting Standards Board	155
	Firm Commitments and Forecasted Transactions	157
10	FASB Statements of Financial Accounting Standards and Derivative Financial Instruments	161
	U.S. Congressional Hearing on Derivatives Regulation, October 1997	162
	The Evolution of Financial Accounting Standards That Target Derivatives	165
	Statement of Financial Accounting Standards 133 and Hedging Activities	168
	The Assessment of Hedge Effectiveness	170
	What Should Be the Risk Premium with Credit Derivatives?	171
	Beneficial Aspect of FASB's New Regulations in Terms of Risk Control	173
Part 3	The Counterparties of Coso: a New Capital Adequacy Framework and Capital at Risk
11	A New Capital Adequacy Framework by the Basle Committee on Banking Supervision	179
	The Revised Notion of Minimum Capital Requirements	180
	A More Rigorous Supervisory Review of Capital Adequacy	184
	The Need for Applying a Market Discipline	187
	The Formal Reference Made to Operational Risk	190
	Using Ratings by Independent Agencies to Gauge Exposure in the Banking Book	193
	Reserve Requirements for Exposure to Sovereigns, Subnationals, and Banks	195
	Reserve Requirements, Corporate Clients, and Securitized Instruments	198
12	An Inside View of a Bank's Capital Requirements	201
	Basic Notions Underlying Internal Ratings	203
	Could Internal Ratings Lead to a Better Capital Base?	206
	Equity of an Institution and Economic Capital	209
	An Evolution Toward More Sophisticated Bookkeeping Methods	212
	Rethinking the Recognition of Assets and Liabilities in the Balance Sheet	214
	The Auditing of Risks, Intraday Values, and Management Control	216
13	Capital at Risk	221
	Notions Underlying Sophisticated Applications of Capital at Risk	222
	Earnings at Risk as Alternative to and Complement of Capital at Risk	225
	Literacy in High Technology and Capital at Risk	229
	Capital at Risk, Irrevocable Commitments, and Current Exposure	232
	Prudential Limits, Volatility, and Capital at Risk	234
	The Need for a Steady Evolution of the Reporting Structure	236
14	Market Value Accounting	241
	Pluses and Minuses with the Accruals Method	242
	A Milestone in Accounting: The Notion of Fair Value	244
	Why Market Value Accounting Is Necessary	245
	Fair Value, Cash Equivalents, Loans, and Securities	247
	Present Value, Replacement Value, and Net Present Value	249
	Positive/Negative Replacement Value and Expected Net Present Value	251
	The Limits of Change in Net Portfolio Value	253
Appendix	Definitions of Internal Controls and the Consensus of a Research Project	255
	The Committee of Sponsoring Organizations of the Treadway Commission (COSO)	255
	The American Institute of Certified Public Accountants' (AICPA) Committee on Working Procedures	255
	The Institute of Internal Auditors (IIA)	256
	The Basle Committee on Banking Supervision	256
	The European Monetary Institute (EMI), Predecessor to the European Central Bank (ECB)	257
	Chorafas' Comprehensive Definition of Internal Controls	257
	Index	259