Improving auditor effectiveness in assessing KYC/AML practices

Abstract

Purpose The purpose of this paper is to report on the suitability of an ISO standard to create an internal control assessment model, which effectively acts as a control system template and mental model to evaluate compliance with the Know Your Customer (KYC) and anti‐money laundering (AML) requirements in the Luxembourg retail and private banking sector. Design/methodology/approach This paper used a qualitative approach with various focus groups and case studies, to elaborate and validate the developed model through methodological triangulation. Findings The proposed assessment model has a matrix structure that facilitates the incorporation of checklists and narratives to ensure effective testing of controls and its structure allows targeting specific areas of risk in the identified KYC/AML processes. Research limitations/implications The development of the model tended to be time consuming and could explain why matrix formats are used less often and the traditional limitations of a qualitative research apply. Practical implications The model can be used to combine various reporting formats on internal control, hence the audit effectiveness can be increased and information asymmetries can be reduced. Originality/value The proposed assessment model offers an innovative approach because it combines a process view of the business with an internal control view. Research in internal control assessment models has been very limited in the past years.

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