It is not easy, it can be subjective and judgemental, it may lack comparability in the details – but in the end it is the only thing that matters. This of course is not something that is relevant to auditors only. It matters to all people involved in the reporting cycle. So it is a matter of education, of awareness and of discipline.
For example, countercyclical capital buffers (CCBs) are to be introduced, as stipulated in the Basel III requirements. They aim to limit financial institutions’ excessive risk taking by requiring an increase in their capital at the time of credit expansion. They also are expected to function as a buffer when losses are actually incurred.