1. Kathy Murphy Paula Johnson Regulations and Audit March 26, 2014 Kathy Murphy OCC Deputy Comptroller & Chief Accountant Paula Johnson OCC Operational Risk and Core Policy Analyst IIA – DC Chapter Event

2. Agenda Increased Focus on Audit 2013 Regulatory Highlights On the Horizon

3. Regulations & Audit Reliance as 3 rd line of defense Multiple Regulators Evolving Rules & Regulations Effective Audit Increased Focus on Audit

4. Audit Capital Planning Compensation Ops Risk Mang Enterprise Risk Mang 4 Audit Compliance Mgt CRA/Fair Lending S UPERVISORY A TTENTION ON O VERLAPPING A REAS OF C ONCERN

5. Increased Focus on Audit July 2009 – FDIC Rule update Reporting Requirements for Annual Independent Audits and Reports (12 CFR Part 363) July 2010 - OCC Announces Heightened Expectations for Audit and Risk Management for its Largest Institutions June 2012 – Basel Committee issues Supervisory Guidance on Internal Audit functions in Banks January 2013 – IIA publishes enhanced Internal Audit Standards January 2013 - FRB Supplemental Policy Statement on the Interagency Internal Audit Function and its Outsourcing E VOLVING R ULES AND R EGULATIONS

6. Accountability / Effective Challenge Stature/Independence Competence/Talent Scope and Frequency Increased Focus on Audit H EIGHTENED E XPECTATION THEMES

7. Robust Board and Audit Committee (Committee) engagement/oversight Strong audit management Highly effective audit processes Highly effective audit reporting Competent internal audit staff Increased Focus on Audit E FFECTIVE A UDIT C HARACTERISTICS

8. Regulatory Highlights Overview OCC Accounting Policy OCC Operational Risk & Core Policy Regulations & Audit

9. October 2013 - OCC Bulletin 2013-26 Guidance on Certain issues related to Troubled Debt Restructurings October 2013 - OCC Bulletin 2013-29 enhanced ‘Third Party Relationships: Risk Management’ October 2013 - NR 2013-158 Bank Accounting Advisory Series updated November 2013 - OCC Bulletin 2013-30 new ‘Qualified Thrift Lender’ booklet of the Comptrollers Handbook November 2013– OCC 2013-31 publishes enhanced "Insider Activities” booklet of the Comptroller’s Handbook O VERVIEW Regulatory Highlights

10. Selected Bulletins 2014-4: Clarification of the OCC’s expectations regarding secured consumer debt discharged in Chapter 7 bankruptcy proceedings 2014-2: Mortgage Banking Comptroller Handbook 2013-26: Interagency Supervisory Guidance Addressing Certain Issues Related to Troubled Debt Restructurings 2013-23: Regulatory Capital Rule (Basel III) 2013-20: OREO Comptroller Handbook Bulletins can be obtained from OCC.gov (left side of the screen under key resources) 10 A CCOUNTING

11. Regulatory Highlights Volcker Rule & OTTI Accounting BAAS 11 A CCOUNTING

12. October 2013 - OCC Bulletin 2013-26 Guidance on Certain issues related to Troubled Debt Restructurings October 2013 - OCC Bulletin 2013-29 enhanced ‘Third Party Relationships: Risk Management’ October 2013 - NR 2013-158 Bank Accounting Advisory Series updated November 2013 - OCC Bulletin 2013-30 new ‘Qualified Thrift Lender’ booklet of the Comptrollers Handbook November 2013– OCC 2013- 31 publishes enhanced "Insider Activities” booklet of the Comptroller’s Handbook O VERVIEW Regulatory Highlights

13. On The Horizon OCC Accounting Policy OCC Operational Risk & Core Policy Regulations & Audit

14. On The Horizon Policy Pipeline Basel Committee on Banking Supervision - External Audit Document ALLL Comptroller Handbook Hot Topics Appropriateness of the ALLL and Accrual Status HELOC “End of Draw” Sales/Creation of Mortgage Servicing Rights (MSRs) Appraisals Valuation, including funding valuation adjustments New capital rule and other regulation changes 14 A CCOUNTING

15. On The Horizon FASB Developments Classification and Measurement Current Expected Credit Losses (CECL) Leases EITF Matters (e.g., OREO, Foreclosed FHA Guaranteed Loans) Private Company Council Changes to PCAOB Auditing Standards Auditor’s Report Auditor’s Responsibilities Regarding Other Information and Related Amendments 15 A CCOUNTING

16. On the Horizon Updating the Audit Booklet in the Comptroller Handbook Risk Governance Framework Standards for Complex Banks – New Appendix to Part 12CFR30 Updating the Internal Controls Booklet in the Comptroller Handbook Updating The Director’s Book 16

17. Internal & External Audit Booklet Board and Management Oversight * Audit Programs (types of audits) Internal Audit Function (Oversight & structure) * - Independence and Competence * Co-sourcing & outsourcing * External Audit - Board & Committee Oversight, External audit opinions* Annual 12CFR363 reporting * Internal Audit Program - Audit Universe *, Audit Work Programs, Sampling Methods & Techniques *, Risk Scoring Methodology *, Follow-up Activities *, Professional Development Program* Quality Assurance Program* Continuous Auditing * Reliance on Assurance Providers * - External & Internal assurance reports, Audit planning impact 17 On the Horizon

18. Increased Focus on Audit – rules and guidance, regulators, Heightened expectations themes, and effective audit elements 2013 Regulatory Highlights – accounting and operational risk/core policy highlights On the Horizon - Handbook updates Questions? Midsize Bank Audit Roundtable Summary

19. Kathy Murphy Paula Johnson Regulations and Audit March 24, 2014 Kathy Murphy OCC Deputy Comptroller & Chief Accountant Paula Johnson OCC Operational Risk and Core Policy Analyst IIA – DC Chapter Event