An audit strategy outlines the general approach and key components of the audit, serving as a blueprint for the audit plan, which details the specific procedures and steps to be taken.
The Basel Accords are three versions, with numerous amendments, of international banking agreements developed by the Basel Committee. They seek to establish a stable international banking system by specifying capital requirements, internal measures of risk assessment, bank supervisory review standards, and market discipline through the disclosure of available capital, risk exposure, and assessments as a measure of the institution's capital adequacy.
The bill rate, also known as the discount rate, is the rate applied in the discount market at which bills of exchange are purchased at a value less than their face value upon maturity. This rate considers the quality and associated risk of the bill being discounted.
Capital cover is a crucial financial metric indicating the capital value of a portfolio relative to the capital sum required to finance it. It serves as a risk assessment tool, with lower capital cover indicating higher investment risk.
Completion risk refers to the inherent risk within project financing schemes that the project might not be completed on time, within budget, or to the required specifications. This type of risk is a critical concern for investors and stakeholders in large-scale projects.
A credit analyst is a professional responsible for evaluating the financial affairs of individuals or corporations to determine their creditworthiness. They assess the risk associated with lending and determine credit ratings.
Credit Watch is a term used by bond rating agencies to indicate that a company's credit is under review and its rating is subject to change. The implication is that if the rating is changed, it will typically be lowered, usually due to an event that adversely affects the income statement or balance sheet.
Expected return is a key concept in finance that estimates the likely return on an investment, based on historical data or anticipated performance. This measure helps investors evaluate the potential profitability of various investment options and make informed decisions.
A feasibility study is an analytical process used to determine the viability of a project, venture, or business activity. It assesses various aspects, including financial, technical, legal, and operational factors, to evaluate the potential for successful completion and a satisfactory return on investment.
The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Organization for Economic Cooperation and Development (OECD) to combat money laundering and terrorist financing on a global scale through policy development and surveillance.
The hurdle rate is the minimum rate of return on an investment or project that a manager or company seeks to achieve before it generally discusses or explores the project. This rate is also known as the required rate of return or the benchmark rate.
Insurability is the circumstance in which an insurance company can issue life or health insurance to an applicant based on standards set by the company. It evaluates the risk and determines if the applicant qualifies for coverage.
The Law of Large Numbers (LLN) is a mathematical principle that states that as the number of exposures increases, the results become more predictable and closer to the expected outcomes.
Moody's Investors Service is a preeminent financial services company headquartered in downtown Manhattan. It stands among the three most well-known bond-rating agencies in the United States, alongside Fitch Ratings and Standard & Poor's.
Non-statistical sampling or judgmental sampling is a method used in auditing where the samples are selected based on the auditor's judgment rather than random selection methods. This technique can be employed when statistical methods are impractical or when a quick assessment is needed.
The Payback Period Method is a capital budgeting technique that calculates the time required for projected cash inflows to equal initial investment expenditure, often used to gauge project risk.
Preferred risk refers to an insured, or an applicant for insurance, who has a lower expectation of incurring a loss than the standard applicant. For instance, a non-smoker applying for life insurance may receive reduced premium rates due to a longer life expectancy.
Probability is the likelihood that a particular outcome will occur, quantified on a scale from 0 (indicating certainty that it will not occur) to 1 (indicating certainty that it will occur). It is a key concept in decision-making models, often subjective in nature.
RAROC, or Risk-Adjusted Return on Capital, is a financial metric used to determine profitability considering the risk taken by a firm. It assesses the returns, adjusted for risk, on the capital invested.
A rated policy is an insurance policy where the applicant is charged a higher-than-standard premium due to unique factors such as health impairments, hazardous occupations, or risky hobbies.
An auditing technique focused on identifying and assessing the levels of risk in different areas of an organization's systems to concentrate efforts on the areas of highest risk, thereby improving the detection of errors or fraud.
A method used in decision making to evaluate the impact of variations in key variables on projected outcomes, helping to identify the degree of risk associated with a decision.
Subjective probabilities represent individual beliefs about the likelihood of an event occurring, differing from objective probabilities that are based on statistical evidence.
Taffler's Z Score is a financial metric used to predict the likelihood of a company going bankrupt within a year, specifically tailored to UK-based companies. It is often compared to other financial distress prediction models, such as the Altman Z Score.
An underwriter assesses risks and decides whether or not these risks can be insured, setting the appropriate premium charges, typically based on the frequency of past claims. Additionally, underwriters play a crucial role in financial transactions by guaranteeing to buy unsold shares during new issue offerings.
