EU Commission and Basel II

Because of European corporate scandals comparable with those in the United States, the EU Commission is imposing similar requirements for improvement in auditing standards, oversight, and responsibilities by creating directives related to corporate governance, transparency, audit, accounting standards, and information services. A major difference is that the U.S. Sarbanes-Oxley Act carries fines and criminal sanctions, whereas the EU Commission does not recommend that level of enforcement.

Although the Sarbanes-Oxley legislation originated in the United States, there are ramifications for companies headquartered in other countries. Emerging European professional standards such as those established by the International Accounting Standards Board and the Basel II Capital Accord also will affect many multinational companies.

Basel II Capital Accord

Basel II is a consortium of international banks mostly in Europe but also in the United States and Canada. Initiated in 1974, the group publishes accords that cover a variety of banking topics and are intended to provide increased supervision and oversight of international banks. The advisory committee intended to promulgate a variety of technical and financial standards. The focus of the group is to provide a risk-management framework around capitalization standards for international banks. The Basel II accords are entirely voluntary, and any adoption is governed by the central bank of each country.

The Basel II Capital Accord is the most recent and most visible of the recommendations. The intention of this accord is to implement increased risk-management and capital-supervisory regulations governing the capital adequacy of internationally active banks.

In general, the Basel II Capital Accord provides for IT controls revolving around risk management in relation to loans. Therefore, as with Sarbanes-Oxley, the IT auditor should be concerned primarily with controls that protect the integrity of financial information.