Treasury and Asset Liability Management (ALM) auditing involves evaluating the corporate governance models, market risk metrics, and control systems established to manage an organization’s liquidity, funding strategies, and investment positions.

Interest Rate Volatility Exposure = Balance Sheet Asset Duration - Balance Sheet Liability Duration

Internal auditors evaluate ALM processes by testing the data integrity of models used to track interest rate risk, foreign exchange exposures, and liquidity coverage ratios. Auditors review investment portfolio entries to confirm compliance with the board’s approved corporate investment policy limits, verify the valuation of complex financial instruments against independent market feeds, and check that hedging transactions are authorized and documented.

The audit team also reviews liquidity stress-testing models, confirming that the organization maintains sufficient liquid assets to withstand short-term funding disruptions.