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					          Regional Workshop on Financial Reporting and Auditing
                     for Financial Sector Regulators

Enhancing the Relationship between Supervisors and Auditors: A Preparer`s Perspective
Agenda
   1. Financial Reporting & Regulatory Requirements

   2. Tax reporting: IAS 34 vs. IAS 12

   3. Trade vs. settlement date accounting

   4. Reclassification

   5. Purchase portfolio and credit loan provision

   6. Alignment of accounting policies after M&A




                                                       RW | 30.05.2012   Seite 2
Dependencies of IFRS Financial Statement vs. Regulatory Reporting

       Risk Weighted Assets                                                                        Regulatory capital

  EaD is derived from carrying                   Solvency ratio
                                                                                           IFRS equity
  amount of all assets and off-               Regulatory capital                         - Prudential filters
  balance sheet items                               RWA                                  = Tier I capital
                                                                                         + Subordinated debt
                                         IFRS Financial Statement                        = Total regulatory capital
                                         Assets          Liabilities, Equity
           Liquidity ratio              Loans           Due to                              Scope of consolidation
 • Liquidity Coverage Ratio                              customers
                                        Allowance                                       • IFRS: principle of control,
 • Net Stable Funding Ratio                                 Debt securities               significant influence
                                     Trading
                                     assets                 Trading iabilities          • Regulatory: credit institution,
                                                                                           financial institutions (business
                                     Investment            Other liabilities             modell approach)
                                     securities
                                                         Subordinated
                                     Intangible         debt
                                     assets
                                                            Equity
           Leverage ratio                                                                           Pillar 3 Report
                                                  Notes
                                              Risk disclosure                            Additional disclosure of
            Tier I capital                                                               regulatory figures and risk items
   EaD of all assets + off-balance
                items
                                                     FINREP
                                         IFRS Balance sheet + P&L
                                         items for regulatory scope of
                                         consolidation
                                                                                 RW | 30.05.2012                        Seite 3
RWA
     – IAS 39, IFRS 9 Phase 1, IFRS 9 Phase 3, IFRS 9 Phase 3: holding category, impairment and hedge
        accounting determinate IFRS carrying amount, that will affect RWAs
Solvency ratio
     – Increasing regulatory capital charge will require active balance sheet management
Regulatory capital
     – Increasing qualitative requirements on regulatory capital affect IFRS equity and subordinated debts
     – IAS 39, IFRS 9 Phase 1, IFRS 9 Phase 3, IFRS 9 Phase 3: holding category, impairment und hedge
        accounting directly affect IFRS equity and c.p. regulatory capital
     – IFRS 9 effect to revaluation reserve may cause new prudential filters
Scope of consolidation
     – IFRS 10-11: May cause new deltas between IFRS and regulatory scope of consolidation
Pillar 3 Report
     – IFRS financial statement is main data-source of Pillar 3 Reporting
FINREP
     – New regulatory reporting to EBA based on IFRS balance sheet and P&L items, but regulatory scope
        of consolidation and new views differing from risk disclosure
Leverage ratio
     – Simplified: Tier I capital divided by balance sheet total plus weighted off-balance sheet exposure
Liquidity ratio
     – Regarding to balance sheet items but strict market valuation




                                                                     RW | 30.05.2012                  Seite 4
Understanding business transactions and reporting


2. Tax reporting: IAS 34 vs. IAS 12
   Income tax expense is recognized in each interim period based on the best estimate of the weighted average annual
    income tax expense (quote) expected for the full financial year (IAS 34.30 c).
   For purpose of target / actual comparison group`s parent company requires actual tax calculation (IAS 12) and
    modification of estimated quote if necessary.
   Use of actual tax calculation as best estimate of tax quote for interim financial statement is discussed critically.




3. Trade vs. settlement date accounting
   An Entity has the choice to recognize the financial asset at balance sheet on trade date or settlement date.
   E.g. an entity buy or sell a available for sale bond with trade date 30th March and valuta date (Settlement) on 3rd April.
    – Use of Trade Date Accounting
      Recognize / derecognize the bond and related P&L-effects on balance sheet on 31th March
    – Use of Settlement Date Accounting
      No recognition/derecognition of the bond and related P&L-effects at balance sheet on 31th March




                                                                                  RW | 30.05.2012                         Seite 5
IFRS Consolidated Accounts and non-organic growth


4. Reclassification
   Entities which have the same financial assets on their balance sheet could classify these assets in a different way because
    of different accounting policies or reclassifications in the past due to financial crisis.
   Entities have the option to:
    – designate the financial assets at FVtPL
    – designate the financial assets as AfS
    – especially for structured products entities can use split accounting or fair value option.
   Entities have different definitions of active (liquid) markets and different measurement systems/models.
   So entities have different categories and measurements for the same financial asset.



5. Purchase portfolio and credit loan provision
   In general financial instruments are recognized at their fair value, initially. Thus on initial recognition there is no impairment
    loss as any incurred or expected losses are reflected by the fair value already. If subsequently a loss occurs the financial
    assets are provisioned either directly or by using an allowance account.
   In case of a business combination financial assets as part of the acquired entity are re-measured at their acquisition-date
    fair values, similar to a single asset purchase (e.g. initial allowance nil).
   Consequently, for consolidation purposes only losses in excess of those covered at acquisition date are treated as
    impairment and might lead to reversals later, whereas a recovery from losses adjusted for at acquisition date might lead to
    an other income.
   Consolidation does not impact the acquired entity„s financials; rather the acquired entity„s financials need are adjusted
    ongoing in the course of the group financial reporting.



                                                                                     RW | 30.05.2012                          Seite 6
Changes in Accounting Policies


6. Alignment of accounting policies after M&A
   Consolidated financial statements shall be prepared using uniform accounting policies (IAS 27.24)
   Due to available accounting options and accounting assessments, accounting practice can differ individually. Examples:
    – Accounting options:
       For the accounting of pension provision two different options in form of SORIE- or the Corridor- approach are available
       (IAS 19.92 and 19.93)
    – Accounting assessments:
       – For the categorization of financial assets the term “active market” can be a crucial aspect (IAS 39.9), due to the fact,
          that “active market” is not legally defined various definitions can be obtained in practice
       – The Standard does not specify a single method for assessing hedge effectiveness (IAS 39.AG107).
   As long as sub-group and group have to publish their own consolidated financial statements (e.g. because both are listed
    companies) an full alignment of the accounting policies is challenging
   At least as long as both the sup-group and the group has to publish their own consolidated financial statements (e.g.
    because both are listed companies) an alignment of the two accounting policies are not possible.
   For that reason, the sub-group has to provide additional accounting data in form of accounting policy-adjustments to the
    group




                                                                                  RW | 30.05.2012                         Seite 7

				
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