International Accounting
and Finance
Master Thesis No 2001:11
Harmonization of Accounting
Standards
-Disclosure Policies and
Practices of European Commercial
Banks-
Fossung Michael Forzeh & Rexon Tayong
Nting
Graduate Business School
School Of Economics And Commercial Law
Göteborg University
Issn 1403-851x
Printed By Elanders Novum AB
ABSTRACT
This research has been carried out to review the effectiveness
of the European Commission (EC) Directive on regulating financial reporting
policies and practices of companies in the EU member countries. This has been
achieved through a comparative analysis of financial reporting practices of
some key European banks. A sample has been drawn from two banks each in the
United Kingdom, Sweden and Germany - countries perceived to be a representative
of three different financial reporting cultures within the European Union.
Focusing on measurement and valuation methods, consolidation
practice, and how financial information is presented, we found that comparable
financial reporting exists among banks in the same country more than among
banks in different European countries. Any divergence in reporting practice
could be explained by the individual banks reporting needs and culture, which
are shaped by many factors including the security market1(*) requirements and the
institutional environments of different member countries. The influence of
individual company needs explains why most German banks use the International
Accounting Standards, and the influence of different institutional environments
explains why most Swedish banks use national standards. The effort of the
European Commission has to some extent increased harmonization but not
standardization.
Key words: financial reporting, policies and practices,
European banks
ACKNOWLEDGEMENT
We feel very privileged to have completed this work with the
help of some people. Our peers, professors, and administrators of the School of
Economics and commercial law, especially those within the Graduate Business
School who have assisted us enormously in realizing our goal. We are not able
to present an exhaustive list; thus we give thanks to every body.
We owe special thanks to our supervisor, Assistant Professor
Håkan Javefor for his inspirational approach to supervising, and for
bestowing us with the insight of research methods.
We are also indebted to P. Mattila and M. Åhlqvist for
their `challenger - role' during our thesis seminars.
We are also very thankful to our Parents, relatives and
friends for their moral and financial support during this period of profound
dedication in our lives.
May you all receive abundant blessing from the Almighty God.
December 2001
Fossung Michael Forzeh Rexon Nting Tayong
LIST OF
FIGURES
FIGURE 1: BEST PERFORMING BANKS IN RISK DISCLOSURE
1999-2001
9
FIGURE 2: GROUP OF COUNTRIES WITH IDENTICAL
ACCOUNTING PRACTICES.
10
FIGURE 3: GROUPS OF COUNTRIES WITH COMMON
ACCOUNTING PRACTICES.
19
FIGURE 4: PROPOSED RESEARCH DESIGN FOR STUDYING
REPORTING PRACTICES.
26
FIGURE 5: SCOPE OF THE SURVEY (A PRESENTATION OF
SAMPLE)
28
FIGURE 6: PROPOSED COMPARATIVE FRAMEWORK.
43
FIGURE 7: SUMMARY OF FINDINGS.
51
FIGURE 8: ACCOUNTING STANDARDS OF USE BY LOCAL AND
MNES BY 2010
54
TABLE OF CONTENT
ABSTRACT
I
ACKNOWLEDGEMENT
II
CHAPTER 1
1
1. INTRODUCTION
1
1.1 BACKGROUND
1
1.2 CONCEPTUAL FRAMEWORK
2
1.3 FORCES AND PRESSURES FOR ACCOUNTING
HARMONIZATION
3
1.4 PROBLEM STATEMENT
4
1.5 OBJECTIVE OF THE STUDY
5
1.6 SIGNIFICANCE OF THE STUDY
6
CHAPTER 2
7
2. LITERATURE REVIEW
7
2.1 REPORTING POLICIES AND PRACTICES VS
REGULATIONS
7
2.1.1 The Influence Of Culture
10
2.2 HARMONIZATION OF INTERNATIONAL
ACCOUNTING STANDARDS
13
2.2.1 What Is Accounting Harmonization
13
2.2.2 Accounting Areas With Differing
Accounting Policies
13
2.2.3 Practical Differences In Accounting
Development and Annual Accounts -An EC Perspective
15
2.2.4 The Role Of Different Pressure Groups On
Accounting Harmonization Among EC States
20
2.2.5 International Quasi-Governmental
Bodies
21
2.2.6 Investors, Analyst And The Stock
Markets
21
2.2.7 Employees And Trade Unions
22
2.2.8 Credit Institutions
22
2.2.9 Accountants, Auditors and the General
Public
22
2.3 THE ISSUE OF TRANSPARENCY IN
ACCOUNTING INFORMATION
23
CHAPTER 3
25
3. METHODOLOGY OF STUDY
25
3.1 RESEARCH STRATEGY
25
3.2 CASE STUDY STRATEGY
26
3.3 CHOICE OF COUNTRIES
27
3.4 CHOICE OF CASE STUDY AND SCOPE OF
THE SURVEY
27
3.5 CHOICE OF BANKS
27
3.5 DATA AND INFORMATION
COLLECTION
28
3.6 LITERATURE REVIEW
28
3.7 VALIDITY
29
CHAPTER 4
31
4 ACCOUNTING POLICIES AND PRACTICES
31
4.1 THE SWEDISH ACCOUNTING
31
4.1.1 FöreningsSparbanken
31
4.1.2 Skandinaviska Enskilda Banken
(S.E.B.)
33
4.2 THE GERMANIC ACCOUNTING
35
4.2.1 Dresdner Bank AB
35
4.2.2 Deutsche Bank Ab
37
4.3 THE BRITISH ACCOUNTING
38
4.3.1 HSBC Bank
38
4.3.2 Barclays Bank Plc.
40
CHAPTER 5
43
5.1 ANALYSIS
43
5.2 SUMMARY OF FINDINGS
49
CHAPTER 6
53
6.1 CONCLUSION
53
6.2 CONCLUDING NOTE
54
6.3 LOOKING TO THE FUTURE
54
REFERENCES
57
Chapter 1
1.
INTRODUCTION
1.1 BACKGROUND
This work has been undertaken to elucidate the divergence of
European commercial banks' reporting policies and practices. Despite the
presence of a
Basic theoretical infrastructure for uniform reporting,
European banks have different reporting practices. We have been inspired by
the European Community «One Market» philosophy, a philosophy which
has several of us skeptical about its effective applicability in the banking
sector. We regard this sector as special, especially as it is involved in a
more exposed environment full of uncertainty. The presence of a more special
character (culture) has even increased our state of bewilderment as to whether
identical reporting practice would ever exist given the cultural frontier that
will never end within the EU one market area. Because it is very complex to
link cultural policy with economic policy, we have addressed the process and
practice of accounting harmonization with a focus on the European community as
a whole, and at the national level of countries within the European domestic
market, noting that existing cultural diversity on the one hand and company
goals on the other hand could influence reporting standards a great deal.
The focus has been on explaining whether one European banks'
reporting policies and practices meet the requirements of standards, in
relation to the policy and practice of other banks within the European
Community. The standards (Directives) of the EC constitute a benchmark, in view
of the fact that it is not just a recommendation but also a law binding all
banks in member states. It is from this dimension that we have described
cultural differences in both the countries and the industry.
We have adopted the investigator perspective on the effects of
intra-continental accounting differences on the one market philosophy and seek
to provide knowledge potentially relevant to regulators and accounting standard
setters who are concerned with the effects of inter-bank accounting differences
on the operation of the European internal markets. We recognize the importance
of banks and other financial institutions, in terms of their pivotal role in
financial markets and in the overall monetary and economic system of the
internal market (The Commission of the European Communities, June 2000,
Brussels).
1.2
CONCEPTUAL FRAMEWORK
Accounting standards are solid principles for financial
accounting and reporting developed through a structured standard setting
process and issued by a recognized standard setting body (an Accounting
Standards Board). Accounting standards spell out how transactions and other
events are to be recognized, measured, presented and disclosed in financial
statements. The purpose of such standards is to meet the needs of users of
financial statements by providing the information considered necessary to make
informed decisions (Canadian Institute of Chartered Accountants).
We difine disclosure as the value added statements or
additional information given to cover strategic business areas, which are less
covered in the accounts. On the other hand, harmonization reduces the
differences in accounting practices across countries ultimately resulting from
a set of international norms to be followed worldwide. (Doupnik, et al,
1993)
Banks and similar financial institution are business units
whose spectrum of user groups is extensive. Changes in the information
provided in annual reports is even more strategic as they are exposed to many
business risks resulting from a high volatility of their business environment.
The micro and macro economic variables such as interest rates, exchange rates
and inflation or price changes are strategic reporting areas. By transacting
in exchange-traded financial instruments (such as futures and options, swaps,
forwards, and other customized instruments), market participants are able to
transform their risk exposures. In anticipation of movements in interest rates,
(currency) exchange rates, indices of stock prices or groups of produce, and
the prices of various specific commodities, the risk exposures are even better
transformed. For instance, if derivatives are suitably employed will enhance
general economic welfare thus, creating risks transformations that are
pragmatic and cost-effective. Regrettably, current external reporting
requirements for financial assets and liabilities, and for derivatives, are not
only deficient but also inconsistent. The reporting requirements often coax
firms not to hedge important risk exposures and, occasionally, to hedge
accounting in place of economic impacts.
1.3 FORCES AND PRESSURES FOR
ACCOUNTING HARMONIZATION
The subject matter «Harmonization of disclosure
practices» has been discussed and will continue to be discussed by
different scholars, accounting bodies, researchers, governments, and regulatory
organizations as long as the needs of all parties with interests in financial
statements are not fully met. In order to meet the needs of all, efforts have
been applied to setting standards that will be internationally/continentally
recognised and applied. The subject has a long history from when it was first
handled, and has been an essentially political process with a variety of
organizations, both public and private, all of them having varying objectives,
scope, and powers of enforcement.
Different country groups practicing different accounting
systems have distinctive and unique patterns, depending on the history and
culture. If securities markets were to continue to operate in an international
perspective, no matter where the parent company is based, then investors and
other users would prefer accounting standards to be harmonized for easy
understanding and comparability. Also, since most multinational firms are in
the process of globalization, and because of the free movement of securities
and other forms of investments, the integration of markets has brought about
some convergence of accounting practices at the level of consolidated accounts
of Multinational Enterprises (MNEs) listed on cross boarder stock exchange
markets.
Uniform disclosure, therefore, should establish the
possibility for financial information to be interpreted by any stakeholder,
prospective stakeholders, government and all other interested parties
irregardless of location, to make informed decision. A wide range of
organizations and user groups have called for additional and more comparable
information. Those who have been in active support of international standard
setting are governments and international intergovernmental organizations,
trade unions and employees, investors and financial analysts, bankers, lenders,
creditors, accountants and auditors, and the general public. The forces range
from EC directives in the European community, OECD and UN guides, to the IASC's
recommendations. The activity of harmonization of accounting standards is
complex and dynamic, considering the differences in countries history and
culture.
1.4 PROBLEM STATEMENT
The commission of the European Community has been involved in
the harmonization or standardization of accounting and reporting standards as
far back as the mid-1960s, in fulfillment of the company law harmonization
undertaken following the Treaty of Rome in 1957. The Company Law Harmonization
ensures that no country will be at a competitive disadvantage as a result of
legal differences between countries in order to enhance European integration.
In contrast to the recommendations of UN and OECD, any
agreement that takes the form of a «Directive» has the force of law
through out the community's countries as each country has the obligation to
incorporate such a «Directive» into its respective national law. A
good initiative of this type is not observed, as varying reporting policies and
practices exist among MNEs.
In spite the early beginning of the quest for international
harmonization, the fourth Directive (Annual accounts, content, valuation,
preparation rules) was only approved in 1978. The implementation process of
harmonized standards took even longer, with Italy being the last to finally
amend its company law in 1991(Radebough and Gray, 1997). The quest and effort
for uniform reporting of banks is ongoing. In June 2000, the European
Commission had a special session in Brussels recommending banks and similar
financial institutions to provide enhanced disclosure of their activities in
financial instruments and other similar instruments owing to the banks'
significant role in the financial markets and in the overall monetary and
economic system.
Although the EC recommendation does not make it obligatory to
disclose confidential or proprietary information, the commission identified the
need for banks and other financial institutions to provide the public with
information that is sufficiently comparable for the smooth functioning of the
internal European market (Commission of the European Communities, 2000). As per
the Commission's specifications, each bank's disclosure statement should
contain a wide range of financial and other information, in relation to the
bank itself and its banking group. These laws were obviously made to be
followed. They were made because the parties (standard setters) drawing them
had some objectives to attain. We wonder whether the laws and recommendations
are being implemented. Consequently, a survey on standards implementation
degree is imperative.
The hypothesis: «Standards have brought about uniform
reporting within the EU banking sector» will be verified or falsified
in this research.
1.5 OBJECTIVE OF THE STUDY
The major objective of this study is to identify any
discrepancy in reporting practices among European Commercial banks, using the
EC Directives as a benchmark. Minor objectives include the following:
· To describe the process of accounting harmonization within
the European Community.
· To identify the divergence existing between theory and
practice on financial reporting.
1.6 SIGNIFICANCE OF THE STUDY
Our readers, especially standard setters, may find the results
useful in formulating and adapting strategies for revising existing standards.
We also intended to open some problem areas for future research in order to
widen the focus of knowledge, as demonstrated in existing literature.
Chapter 2
2. LITERATURE REVIEW
In this part of the work, we have examined the
meta-theoretical foundation of authors' works relevant to our topic. In the
process, we have summarized the main ideas and theories discussed in
contemporary literature within the world of our topic. We have also assessed
its evolution by citing earlier writings using both textbooks and journals.
Both sources have helped us to improve our knowledge on harmonization and
practices, by looking at the insights in the state of current knowledge. We
have identified the gaps, contradictions, inconsistencies and relations in
existing literature on harmonization and disclosure, which of course has
greatly influenced our perception and work. Below is a discussion of the
relevant literature.
2.1
REPORTING POLICIES AND PRACTICES VS REGULATIONS
Companies reporting policies and practices are influenced by
three major factors: their company culture; laws and regulations; and the
international business environment. The company's culture stems from the
corporation's objectives, especially its reporting motives. A company that
targets customers adopts a reporting spirit that fills its annual reports with
customer oriented information. A company that targets investors prepares
information to meet investors' needs. The modern corporate annual report has
become a major tool for promotion by large listed companies. «Poorly
packaged, statute-driven accounts are increasingly being replaced by a
professionally designed glossy brochure in which the financial statements seem
to play only a supporting role. Photographs, graphs and text are often
prominently presented at the front, with the balance sheet, income statement
and notes to the accounts being regulated to the back. The annual report has
become part of corporate public relations» (Beattie, et al, 1996). The
forgoing quotation gives us a clear picture of the annual report of SEB,
FöreningsSparbanken, Dresdner, Deuchsche Bank, Barclays and HSBC holdings.
The focus is no longer on the figures, but to convince the general public on
the achievements and plans of the company. This attitude of concentrated
decorative reporting impairs harmonization a great deal. Information disclosure
is made available in the report where they are suitable for the interest of
the company and not necessarily for those who need this information.
Most multinational enterprises (MNEs) that seek international
listing (i.e. to have their securities listed in a foreign stock exchange)
adopt a policy that to some extend deviates from national laws. They sometimes
prepare two sets of accounts - one using the national and the other in
accordance with the international standards.2(*) In order to reduce the cost of capital, most firms
give information even beyond the recommendations of national laws. However,
Verrecchia (1999) argues that the compelling evidence indicates more disclosure
results to more liquid markets. The perception that the greatest disclosure
leads to lower cost of capital is only true when public disclosure is governed
by cost-of-capital considerations, given that the existence of information
asymmetries in securities markets may ameliorate the cost of capital during
disclosure, thereby providing an economic basis for evaluations of costs and
benefits of accounting information. His argument was counteracted by Huddart,
et al (1999) who believe that public disclosure requirements tend to increase
trading costs that, in turn, affect listing decisions of corporate `insiders'
and allocation of liquidity flow. Trading is usually concentrated on highly
disclosed exchanges as exchanges try to outperform each other. Therefore, to
maximize trading volume and lower trading costs, corporate `insiders' give away
important information to disguise their trades.
Despite the above argument, it is a popular view that the
issue of disclosure practice is very much influenced by the culture and needs
of the banks, rather than the legislative requirements. According to a study by
Vanalaines (2001), he shows that a considerable difference in risk disclosure
exists between major European banks. Despite the existence of EC Directives,
the differences are to a greater extent due to cultural differences between
geographical areas and especially due to differences in size of banks.
According to Vanalaines, Nordic, German and Swiss banks tend to be best at
presenting disclosures on risk, although British and Spanish banks are also
among the top performers in terms of disclosure. His results show that large
banks tend to disclose more information than smaller ones. This research adds
to our earlier perception that the size of the business unit is another
significant determinant of reporting practice. It is obvious that the size of
the firm has a positive correlation with the level of disclosure. The larger
the firm the more the information to disclose. Vanalaines further identified a
wide gap between the poor performers and the best performers. He rated the top
ten European banks (in terms of disclosure) as follows:
1999
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2000
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2001
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SEB
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UBS
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UBS
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SUB
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MeritaNordbanken
|
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Credit Suisse
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FSB
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Barclays
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HSBC Holdings
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UBS
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SEB
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BSCH
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Barclays
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Dresdner Bank
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Barclays
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MritaNordbanken
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Societe General
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Nordea
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ABN Amro
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Alled Irish Banks
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HypoVereins Bank
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Deutsche Bank
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The Royal Bank of Scotland
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Dresdner Bank
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HypoVereins Bank
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Den Danske Bank
|
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San Paolo IMI
|
Standard Chartered
|
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Bank of Ireland
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SEB
|
|
FIGURE 1: BEST PERFORMING BANKS IN
RISK DISCLOSURE 1999-2001
Source: Trema Management Consulting, 30 Jul. 2001
It is not our goal to rate or classify banks in terms of
disclosure practices. However, it is important to note that 4 of our 6 sampled
European banks featured in this survey, assuming varying positions in the
«top-ten» classification above. What is of interest in this survey is
that it gives a clear picture of disclosure differences existing among banks
within one internal market (the European Community).3(*)
2.1.1 The Influence Of
Culture
Radebaugh and Gray (1997) discuss the issue of cultural
influence on reporting practice in detail. Through a comparative study, they
conclude that despite the existence of standards,4(*) each country's
reporting practice is greatly influenced by its culture and history. They even
identify the differences in reporting among countries in the same grouping, and
state that banks in the same country have reporting features that are unique.
This perception highlights the fact that even in any family, individuals have
their unique traits, different from others. Radebaugh and Gray (1997) blame
history and culture as the cause of uniqueness in reporting practice. In their
study, they made the following five groups of countries with identical
practices:
Group
|
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Countries in-group
|
Anglo-Saxon
|
United States
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United Kingdom
|
Nordic
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The Netherlands
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Sweden
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Germanic
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Germany
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Switzerland
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Latin
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France
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Italy
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Asian
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Japan
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FIGURE 2: GROUP OF COUNTRIES WITH
IDENTICAL ACCOUNTING PRACTICES.
Source: Adapted from Radebaugh and Gray (1997)
Anglo-Saxon accounting is clearly different from other country
groupings with particular emphasis on investor interest and the securities
market. Nordic accounting has many features similar to Anglo-Saxon and Germanic
accounting, while Germanic and Latin accounting have many features in common,
but also differ in areas such as uniform reporting. The Japanese accounting
system is unique, though it has been viewed as having some influences from the
Anglo-Saxon and Germanic traditions. The authors concluded with a hypothesis
that the growing quest for international listing by multinationals would bring
about some convergence in accounting practices.
Nobes and Roberts (1999) used an analytical approach to
explain the sources of accounting systems. Applying the concept of causality
(cause and effect), they perceived that most authors believe legal systems
influence accounting systems. According to them, one model of accounting rests
on two variables, colonial influence and the equity market. This suggests that
the type of accounting is an influence on the regulatory system of accounting,
the reason why the Netherlands has Roman Law but practices (approximately) the
Anglo-Saxon accounting. Another example why they think the accounting system a
country adopts is influenced by the regulatory system is the extensive use of
the US rules by many continental European companies. We will add to this
collection, as we believe it is also for such a reason that the EC is reducing
the pressure mounted by allowing EU multinationals to use IASs to prepare one
set of accounts by 2005.
Through its Contact Committee the European Commission (EC) has
been fighting for uniform reporting by issuing Directives, especially in the
area of consolidation accounting.5(*) The effort for complete harmony of consolidation
practices within the EC has gone a long way in addressing the issue raised by
Radebaugh and Gray (1997). The issue of raising standards will not only ease
the free movement of securities within the internal market, but also
internationally. The EC started by focusing on the internal market, producing
Directives with content relevant for the internal market. This led to high cost
for companies producing financial information using two standards - the
International Accounting Standards and the National standards influenced by the
Directives. This aspect of high cost will not be discussed here, as it would be
addressed later in this work.
The Contact Committee of the EC has quickly identified this as
one of the shortcomings of the Directives, hence the recent call in June 2000,
resulting in «the EU's Financial Reporting Strategy: The Way
Forward.» The `forwardness' of the `reporting strategy', we suspect, was
to integrate the EC Directives into the systems of the International Accounting
Standards (IASs) so that EU based multinationals will no longer face the
psychological and financial trap of information duplication. It is worth
recalling that EU based multinationals had to first prepare financial
statements using both the internal laws (Directives) and then re-prepare the
same accounts using the IASs for international recognition and international
comparability. This exercise was not only very costly, but also misled
investors and the general public who received different figures in different
environments.
In order to solve this problem, the International Accounting
Standards Committee (IASC) and the International Organization of Securities
Commission (IOSCO) agreed on a joint working program to produce by 1998 a core
set of International Accounting Standards (IAS) to be applied by companies
seeking international listing of their securities. European companies that
sought international listing outside the EU had to prepare their accounts in
IASs. The European Commission had to either waive its Directives or accept the
IASs, or on the other hand, the IOSC-IASC agreement had to be successful so
that IASs issued by the IASC are comparable with the European accounting
Directives, and acceptable worldwide.
Agreement on comparability became a point of contention within
the profession and academics of accounting as IASC's publication were said to
be pro-Anglo-American. On the 14th of November 1995, the EC adopted
a «New Accounting Strategy», aimed at satisfying EU multinationals by
letting them prepare their accounts according to the IASs on the condition that
IASs conform to the European Accounting Directives. Adjustment had taken place
at both ends. The EC now recommends that by 2005, all EC companies listed on a
regulated market would be required to prepare their consolidated accounts in
accordance with the IASs. This is due to the EC's recognition of the fact that
accounts prepared by European transnational companies in accordance with
national legislation based on the Accounting Directives do not satisfy the
different standards required elsewhere in the world for international capital market purposes.
2.2 HARMONIZATION OF INTERNATIONAL
ACCOUNTING STANDARDS
2.2.1
What Is Accounting Harmonization
Different authors have defined accounting harmonization in
different ways. It is presumably not an easy word to define, as neither the
European Commission nor other organs of the commission have explicitly defined
the concept of accounting harmonization (Christopher Nobes, 1992). Some have
even complicated the whole concept, by attempting to substitute harmonization
with standardization, implying making the process the same, rather than making
it more compatible. In practice, harmonization of accounting tends to mean the
process of increasing the compatibility of accounting practices by setting
bounds for the degree of variations (Nobes, 1992). This, in our opinion, is
presumed to be the most appropriate definition of the concept.
2.2.2
Accounting Areas With Differing Accounting Policies
Though analysts sometimes argue that it is necessary to
provide disaggregated information in all financial reporting, some are been of
the view that it is necessary to concentrate on such accounting areas where
users need such disaggregated information. Companies are exposed to different
accounting policies in the preparation of their financial statements. In this
section, we try to highlight some accounting areas where different accounting
policies used may have an impact on the financial results.
According to the Statement of Accounting Standards (SAS1)
published by the institute of chartered accountants of India, the following are
accounting areas where differing accounting policies can be applied by
different enterprises leading to different results.
· Methods of depreciation, depletion and amortization.
· Treatment of expenditure during construction.
· Conversion or translation of foreign currency.
· Valuation of inventories.
· Treatment of goodwill.
· Valuation of investments
· Treatment of retirement benefits
· Recognition of profits on long-term contracts.
· Valuation of fixed assets
· Treatment of contingent liabilities.
Another significant area that has been left out is the
treatment of cash flow. Cash flow statements have been one of the areas of
accounting with significant differences in reporting practices. It is becoming
recognized as an important and integral part of the consolidated financial
statement (Radebaugh and gray-1997). It shows the inflow and outflow of funds
from various items. Analysts have argued that the statement merely provides an
insight into the financial position stability and the liquidity prospects of
multinationals, but other schools have argued that for a risk analyst
perspective, it is necessary to know the geographical location of the sources
and uses of funds. Standards proposed by certain bodies have shown significant
differences and variations in regulatory postures on almost every aspect of
cash flow. Wallace, et al (1997) argue that the quest for international
harmonization of reporting practices cannot be as easy as looking at a cash
flow statement, where you identify different ways of categorizing cash flows,
alternative formats of presenting cash flows from operating activities and just
many other differences. In addition, several issues Such as: the bad debts
provision; valuing marketable securities; and the treatment of long-term
contracts, can be considered spicific and given particular treatment.
2.2.3
Practical Differences In Accounting Development and Annual Accounts -An EC
Perspective
Different EC countries have diverse influential factors in
their accounting development process. While in some countries, legal and tax
considerations, or traditions may be significant contributors; in others the
stock and capital markets are of significant influence. The reasons for this
may be diverse, but in some cases are meaningful. For example, in countries
where the users of accounting information are significantly large corporations
exposed to disclosure pressures from international capital markets, the capital
market is of utmost importance to them, thus their disclosure need must be
fully satisfied and bearing information for the financial statements. We have
chosen banks from different accounting areas with different accounting
backgrounds so as to show how such differences in accounting backgrounds may
influence information presented in the financial statements. The Banks chosen
are: Barclays and HSBC, having the Anglo Saxon accounting background SEB bank
and Foreningsparbanken with the Nordic accounting background; and Deustche Bank
and Dresdner Bank with the Germanic accounting background; In the United
Kingdom, for example, the Company Act of 1985, which consolidated all previous
existent Company Acts, includes accounting requirements for all limited
liability companies.
In the United Kingdom, the stock exchange market and the
accounting profession are also influential in the accounting regulatory
process. UK annual reports and accounts consist of consolidated profit and
loss accounts, a balance sheet and a cash flow statement. To assess a review of
operations on a yearly basis, a director's report is necessarily always
included. In consolidation practices, the purchase method is usually followed
though in some cases, and merger accounting or pooling method may be required.
With regards to their measurement practices, the UK applies a conservative
approach than most Anglo Saxon countries where there is constant revaluations
of assets like land and buildings to market values. Inventory cost is also
determined using the first-in-first-out method (FIFO) permitted for tax
purposes, while the last-in-first-out (LIFO) method is not allowed.
In Sweden, for instance, the development of accounting has
been strongly influenced by legal and taxation requirements. There is also a
tradition of involving the accounting profession in the standard setting
process. (Radebaugh and Gray, 1997). Sample Swedish annual reports and accounts
always consists of a consolidated balance sheet, an income statement and a
board a directors annual report. The parent company financial statement is also
always provided. Valuations are sometimes on the basis of historical cost,
although revaluations are sometimes permitted, especially in circumstances
where valuations are materially in excess of book values.
Depreciation is mostly on a straight-line basis. Inventory
cost is determined using the FIFO method. Research and development expenses are
frequently capitalized and amortized over a period of five years, although in
practice most companies charge research and development as an expense. The
purchase method used in consolidation practices is consistent with the EU
7th Directives. Goodwill is written off immediately against reserves
or amortized over its useful life. Foreign currency translation follows the
closing rate method with the temporal method used in highly inflationary
economies.
In the Germanic group of countries, accounting is greatly
influenced by company law and taxation. The accounting profession and the stock
market are relatively small and play a less influential role in these
countries. The situation has changed in recent years where many German
companies have gone to foreign stock markets for listings. The Germans have an
attitude of presenting transparent and reliable financial information, while
interpreting the EU Directives concept of true and fair view as carrying just
that meaning. Tax rules dominate legal decisions on accounting issues and the
development of accounting principles. German financial statements consist of a
consolidated balance sheet and an income statement together with those of the
parent. Regularly included are annual reports from the board of directors. The
Information therein is frequently very detailed. The Germans are quite
conservative in their measurement practices with historic cost accounting
applied and revaluations not permitted. Inventory cost is measured with the
average method, although LIFO and FIFO are frequently used especially when they
correspond to physical usage. Research and development expenses are written off
against reserves. The purchase method is used in business combinations and the
pooling method is rarely used. No legal requirements exist for foreign currency
translation (Radebaugh and Gray, 1997).
Although Radebaugh and Gray's classification may be a reliable
basis for identifying differences in development process and the reasons for
such differences, other authors have attempted to make what may be looked upon
as a more reliable classification. In attempting to identify differences in
annual accounts among EC nations, Nobes (1992) made his classification with
respect to accounting harmonization in the European community and significant
developmental processes by first examining areas where significant differences
exist that have a major influence on accounting development. He identified the
following areas: publication and audit; formats of accounts; conservatism in
providing accounting information; fairness of published information; valuation
bases; consolidation practices and others as being realized from different
accounting backgrounds; hence, influencing the accounting development in those
countries.
According to Nobes (1992), The history of consolidation
practices is different among EC countries. In the United Kingdom, for example,
consolidation accounting developed shortly after the First World War when
holding companies became prevalent. In the Netherlands, for instance,
consolidation was practiced, as early as the 1930s but, in most of continental
Europe, consolidation is a recent development dating from when most countries
adopted the seventh directive in 1985.
In France, for example, there was no law on consolidation
until 1985, while in West Germany, consolidation dates back to 1965 when it was
made obligatory for public companies. It has been noted that in countries where
there has been no tradition of professional accounting measurement standards,
and in cases where there were no law or tax requirements, practice has been
varied. Valuation bases are another area with significant differences in
accounting development. The use of replacement costs and other current values
at the expense of historic cost varies greatly among EC countries. In the
Netherlands, some Dutch companies have used replacement cost as far back as the
1950s. In the United Kingdom, for instance, there have been frequent
revaluations to market values. These fundamental differences in methods of
asset valuation made international comparisons difficult for net assets,
shareholders funds and many ratios (Nobes, 1992). Looking at the way accounting
information is published, there have also been significant differences. In the
Anglo-Saxon and many other English speaking countries, accounts have always
been published after they have been liquidated. Looking at the UK back in the
19th century, publication and audit have always been required for
all companies except dormant ones. The published annual accounts have been
available to the public.
Conservatism has also influenced accounting values in
different ways. In Germany, for example, bankers have a long history of trying
to satisfy that long-term loans were safe by disclosing only information that
protects such values; while in the United Kingdom, reference is usually made to
the concept of prudence. As far as the issue of fairness in financial
information is concerned, corporate laws in UK, Ireland, and The Netherlands
were the only ones in EC countries requiring fairness in audited financial
statements. This was incorporated in the 4th Directives as a
«true and fair view». In German financial statements, there is still
little preference for fairness. Financial reporting is still an exercise of
accurate bookkeeping, which has to satisfy detailed rules and the scrutiny of
the tax inspector (Nobes, 1992). Unlike Radebaugh and Gray, Nobes identifies
principal differences among EC countries in what he calls a two-group
classification. He identified specific features in their background, general
accounting features, specific accounting features and examples of EC countries
that follow this system. See table figure 3 below.
ANGLO-SAXON
CONTINENTAL
BACKGROUND
English law
Roman law
Large, old and strong profession Small
young and weak profession.
Large stock exchange Small
stock exchange
GENERAL ACCOUNTING
FEATURES
Fair
Legal
Shareholder orientation
Creditor orientation
Disclosure
Secrecy
Tax rules separate
Tax dominated
Substance over form
Form over substance
Professional standards
Government rules
SPECIFIC ACCOUNTING
FEATURES.
Percentage of completion method Completed
contract method
Depreciation over useful lives
Depreciation by tax rules
No legal reserves
Legal reserves
Finance leases capitalized No
lease capitalization
Funds or cash statements No
funds flow statements.
Earnings per share disclosed No
earnings per share disclosed
No secret reserves
Secret reserves.
No tax induced provision Tax
induced provisions
Preliminary expenses expensed
Preliminary expenses capitalized
SOME EXAMPLES OF COUNTRIES.
UK
FRANCE
IRELAND
GERMANY
DENMARK
AUSTRIA
THE NETHERLANDS SWEDEN
SPAIN
ITALY
PORTUGAL
BELGIUM
GREECE.
|
FIGURE 3: GROUPS OF COUNTRIES WITH
COMMON ACCOUNTING PRACTICES.
Source: Adapted from Nobes, (1992) «Accounting harmonization
in Europe: process, progress and prospects and survey data.»
It is important to mention the fact that in choosing of our
case study, we have used Radebaugh and Grays's analysis, by sub-classifying
countries, cultural groups. They based their differentiation on several values
that influenced accounting development and differences. Values looked upon in
detail included a country's culture, capital markets and the stock exchange
development, the influences of taxation, the accounting profession and others.
2.2.4
The Role Of Different Pressure Groups On Accounting Harmonization Among EC
States
Several pressure groups have had great influence on the entire
process of accounting harmonization, both directly and indirectly. Though the
various groups have diverse intentions, it has, however, been assumed that
their main intention is to get information that will help them formulate policy
towards large corporations, such as the multinational firms. It is important to
mention that in identifying the various pressure groups, one sees the benefits
the assumed pressure groups will get from accounting harmonization.
The institutional environment has had a meaningful influence
on the financial environment. The extent of government involvement has been
very high in countries with a tradition of detailed prescriptive legislation.
According to Saudagaran and Diga (2000), legislation plays two important roles
in shaping the institutional environment. Firstly, laws often specify the main
criteria for preparing financial reports, to enhance the true and fair view.
Secondly, legislation delegates responsibility to a government agency empowered
to devise rules it considers appropriate for achieving the objectives of such
legislation. Depending on the regulatory intent, different governmental
agencies may take charge of the formulation of specific financial reporting
requirements; for instance, company registrars for corporate governance aims;
securities regulators for capital market; and taxation authorities for tax
objectives. The information governments require of corporations varies and is
influenced by, among other things, the extent of government planning and
regulation. Governments assume taxation requirements have a significant impact
on accounting and, as such, need to get involved in accounting harmonization in
order to fulfill such requirements. Revenue authorities, for example, have
their work complicated when dealing with companies that have foreign branches
or subsidiaries.
2.2.5
International Quasi-Governmental Bodies
Not only the European Commission has been actively involved in
accounting harmonization; the UN, the OECD and many other international
quasi-governmental bodies have taken part in the quest for uniform reporting.
The history of these inter-quasi-governmental bodies is so long. The UN history
can be traced as far back as 1976 when a group of experts were appointed
through the activities of the commission on transnational basis. Following
consultations with business and trade unions, the OECD issued a set of
«guidelines for multinational enterprises» in 1996. The European
union has been involved in the issue of accounting harmonization since the
middle of the sixties. The first and second directives were concerned with
basic issues such as the publication of accounts, and minimum capital, while
the fourth and seventh directives have been drawn to lay down rules on
preparation and publication of accounts in detail.
2.2.6
Investors, Analyst And The Stock Markets
Investors have access to corporate reports and other public
available information and use them to make investments and other decisions.
Sample decisions may range from buying, selling or holdind investments.
Besides, additional information disclosure (especially information about the
future prospects of multinationals) on a worldwide basis. Investors and
analysts are concerned with the lack of comparability of much of the
information that is currently provided (Radebaugh and Gray, 1992). Individual
private investors may be of the opinion that if differences in reporting are so
large and ill-defined, and reliability of reports is doubtful, direct
investments in foreign shares need to be avoided. Some stock exchanges often go
further and employ accountants to explain differences or certify certain
ambiguous balances before taking a decision.
2.2.7
Employees And Trade Unions
Some trade unions participate at intergovernmental levels; and
examples include: the European Trade Union Confederation (ETUC); The World
Confederation of Labor (WCL); and many others. Their interest centers on
information relating to subsidiary activities and employees satisfaction.
Information concerning the terms, conditions, scale, security, and location of
employment are of special concern to them (Radebaugh and gray, 1992). However,
Christopher Nobes (1992) argues that trade unions and other employees groups
connected with multinationals may have a desire to understand and compare
financial statements involving companies from several countries.
2.2.8
Credit Institutions
International credit institutions will constantly be
examining, and by implication comparing, the financial statements from
different countries. Bankers and lenders may sometimes require borrowers to
submit particular accounting information for appraisal and such information
needs to be uniform.
2.2.9
Accountants, Auditors and the General Public
Their role becomes very important especially when looking at
the technical skills and other skills they have in accounting related issues.
It is, however, at the level of the international professional organization
that most of the developments are taking place in accounting harmonization.
Examples of international professional accounting organizations include: the
International Accounting Standards Committee (IASC); International Federation
of Accountants (IFAC); the American Institute of Certified Public Accountants
(AICPA); and many others. Some exist at national levels. They try to formulate
and publish accounting standards that will be observed in the preparation and
presentation of financial statements for public use.
The general public involves all other interested parties not
listed above. Their interest is generally on information about the financial
environment.
2.3
THE ISSUE OF TRANSPARENCY IN ACCOUNTING INFORMATION
It has always been argued by members of the accounting world
that efficient disclosure of accounting information in an accurate, timely and
reliable way will help influence an accurate assessment of a companies
financial performance at a particular point in time. As the internal market
commissioner for the European commission Frits Bolkestein (2000) puts it,
adequate disclosure serves to improve the transparency of financial information
published by banks and other financial institutions.
The market is an important user of financial information and
an effective assessment of a company's financial situation can't be done if
there is not adequate disclosure. But, the question arises, how can financial
information be clear when languages and meanings may differ from one country to
another? Translation and other problems may hinder transparency and fairness in
accounting information, especially when they are not prepared using a
particular reporting standard. Users of accounting and other financial
information have always been emphasizing the need for the world to have a
common accounting language to facilitate an understanding of the information.
Country specific accounting principles are so varied that the aspirations for a
globally integrated capital market can be fulfilled only through a uniform
financial reporting code (Ghosh, 2001).
Chapter 3
3. METHODOLOGY OF STUDY
We believe that in order to formulate a reliable purpose, we
have to carry out a reliable literature review. This gives insight into what
harmonization and practice actually are; hence, an understanding of the
specific problem area is possible. Case study analysis of European banks will
be used to support our analysis on a practical level and, by this, we have used
two commercial banks from three European countries that have different cultural
backgrounds. This section, therefore, sets up a framework and the approaches to
solving our problem.
3.1
RESEARCH STRATEGY
The strategy one uses when doing a study depends on how much
knowledge he has about the problem area and how well the problem is structured
and formulated. The strategic approach we deem appropriate is the descriptive
approach, within which we have made some analysis. We have used the 2000 annual
reports of six European banks to describe the divergence in reporting practices
existing among the European banks.
1. Sample: Cultural
Background
Select Country
2. Sample:
Measure of size
Choice of Banks
Financial Statements
3. Empirical:
Reporting Practice Measurement Practice
Consolidation Practice
Theories
Within a country
4. Difference in Practice
With other countries
Benchmark: EC Directives
5.
Summary of research results
6. Conclusion
FIGURE 4: PROPOSED RESEARCH DESIGN FOR STUDYING
REPORTING PRACTICES.
3.2
CASE STUDY STRATEGY
Since we are doing comparative studies across national
boundaries in order to obtain a broad based coverage of the European community,
we have classified countries with related culture and history into groups;
namely, Anglo-Saxon, Nordic, and Germanic. In the Anglo-Saxon group, we have
chosen two banks from the United Kingdom. In the same vein, we have chosen two
banks Germany to represent the Germanic group, and two banks from Sweden to
represent the Nordic group.
3.3 CHOICE OF COUNTRIES
While the choice of UK and Germany is obvious, we deem it
necessary to give an explanation on our choice of Sweden as representative of
the Nordic model. We believe that to assure validity, Sweden constitutes a
good representation of the whole of Scandinavian due to its size, which is
second to none in the region. We have also considered its industrial nature and
its international attachments. Another reason for choosing this country is that
this research has been conducted in Sweden (being students of the Graduate
Business School of Gothenburg University.)
3.4 CHOICE OF CASE STUDY AND SCOPE
OF THE SURVEY
As explained above, we are doing a comparative study across
national boundaries, thus a multiple case study approach has been used. To make
our conclusion more reliable, we have chosen countries in the European
community with different cultural backgrounds. Banks, as our case studies, are
from Sweden, Germany, and the United Kingdom. Although our sample is very small
for the population within which we are working, our intention is just to
illustrate the problems. Our results aim at giving a picture of the situation,
and probably promoting further research.
3.5 CHOICE OF BANKS
We resolved to choose banks whose financial statements are
available on the net, and which are published in English. These banks should
also be large in size in their respective countries. Three factors have been
used to measure size; these are: the number of employees, turnover, and income.
It is not necessary to discuss size in detail. The banks in the figure below
meet these criteria. It is worth mentioning that some banks of comparable size
have been left out of the study not because they fail to meet the criteria, but
because we intended to reduce the sample size. Consequently, in the population
of banks with comparable size, we made a random sample.
Sweden Germany
United Kingdom
-- SEB Bank --Deutsche Bank
--Barclays Bank
--FöreningsSpar. --Dresdner Bank
--HSBC Holdings
FIGURE 5: SCOPE OF THE SURVEY (A PRESENTATION OF
SAMPLE)
3.5
DATA AND INFORMATION COLLECTION
In this study, we have used secondary data as the only source
of information. We would have used the primary data, especially interview to
illustrate further. The existence of time and cost has limited our findings to
the use of secondary data. However, this have not very much, affected our
results. (See validity) Our secondary data has been collected from annual
reports, journals and magazines, as well as textbooks.
3.6
LITERATURE REVIEW
In this part of the thesis, we conduct an extensive search of
various articles, literature, databases, and other secondary data, which
carries meaningful information on the topic. The prestigious School of
Economics and Commercial Law library has been our major source of information,
as an extensive search of various databases carrying meaningful information on
the topic and topics within its sphere.
3.7
VALIDITY
Validity tells us whether an item measures what it is supposed
to measure or describe. Historically, countries with different cultures have
often had different approaches to accounting standards preparation. To make our
study valid, we have chosen case studies from different cultural backgrounds in
order to be able to make an effective comparative analysis.
For an illustration of differences in international accounting
practices, secondary data (especially information from annual reports)
constitutes a more appropriate data source. Validity can be attained when only
the secondary data is analyzed. We are not saying that the primary data would
be useless; rather the use of secondary data would add more meaning to the
results.
However, it is important to note that interviews give room for
normative information, which is not significant in this economic situation. If
we had used primary data, instead of getting information on what companies
actually do (as published in annual reports), we would have received
information on what companies ought to or are supposed to be doing. Interviews
could have been indispensable only in the case of explaining what may turn out
to be ambiguous or difficult information to understand in the financial
statements. Since ambiguity is minimal, we are very convinced that the
secondary data used provides us with enough of a basis to accomplish the purpose of this
research.
Chapter 4
4 ACCOUNTING POLICIES AND
PRACTICES
This section deals with the practical aspect of disclosure by
the six banks in the case study. Starting with
FöreningsSparbanken and the Swedish reporting tradition and
ending with Barclays and the UK tradition, we have painted a descriptive
picture on the reporting practices in these banks, looking at three main areas;
namely: presentation of financial statements; measurement practice of assets
and liabilities; and consolidation accounting.
4.1 THE SWEDISH ACCOUNTING
4.1.1 FöreningsSparbanken
Traditionally, FöreningsSparbanken prepares its financial
statements in accordance with the Annual Accounts Act for Credit Institution
and Securities Companies (AACS), and the regulations and general advice of the
Swedish Financial Supervisory Authority (SFSA). However, as of the financial
year 2000 the Group applied the recommendations of the Swedish Financial
Accounting Standard Council (SFASC) on income taxes (RR 9) and the reporting of
associated Companies (RR13).
Presentation of Financial Statement
FöreninsSparbanken's annual report and accounts comprise
an overall presentation of the company's present and future surroundings, the
board of director's report, the consolidated profit and loss accounts and
balance sheet, notes to financial statements and the proposed disposition of
profit. Financial statements for both the group and the bank are provided.
Measurement
Practice
As usual, during 2000 and 1999, valuation took the form of the
historic cost approach. Their building was revalued and added to the balances
brought forward at the beginning of the years.
The straight-line method was used to depreciate equipment at
20% of acquisition value. Real estate, with the exception of properties taken
over to protect claims, was depreciated at the highest amount allowable for tax
purposes. Financial fixed assets, consisting of interest-yielding securities,
were valued at their accrued acquisition value (historic cost). Financial
current assets, which consist of transferable securities and derivatives in the
trading operations, were valued at fair value.
There was no fixed basis for Goodwill amortization. Goodwill
was amortized based on an item's economic life. While other Research and
Development activities may be capitalized, it is worth noting that the company
has a tradition of not capitalizing information technology (IT) systems. The
tax on profit for the financial year was calculated by adding deferred tax from
previous years to current year tax.
Consolidation
Accounting
The consolidated accounts were prepared in accordance with
recommendation (RR 1:96) of the Swedish Financial Accounting Standard Council.
The consolidated accounts comprise FöreningsSparbanken AB, and those
companies in which the Bank directly or indirectly holds more than 50 percent
of the voting rights of the shares. These companies were reported in the
consolidated accounts using the purchase accounting method. For associated
companies (i.e. companies in which the Bank directly or indirectly hold more
than 20 percent of the voting right, and where the ownership interest is an
element in a long-term affiliation between the Bank and the company) the bank
used the equity method. In addition, the bank used the proportional method to
consolidate ESkill tuna Rekarne Sparbank AB, which is a associated company. It
should be noted that figures for the latter were entered on a separate line on
the balance sheet. Amortization of goodwill was deducted from the Groups' share
of each associated company's profit. Dormant companies and other companies of
insignificant size were not consolidated. Companies taken over to protect
claims were also not consolidated since they were of little significance or
were expected to be divested within the near future.
Shares in foreign subsidiaries and associated companies that
were refinanced in the same currency were valued at their acquisition price in
the Parent Company. Subsidiaries and associated companies were translated in
accordance with the current method. This means that assets and liabilities were
translated to Swedish kroner at the closing day rate, while the profit and loss
account is translated at the average rate for the financial year. Translation
differences that arose from the use of the current method were entered in the
shareholders' equity. This practice is in accordance with recommendation RR 8
of the Swedish Financial Accounting Standards Council.
4.1.2
Skandinaviska Enskilda Banken (S.E.B.)
As with FöreningsSparbanken's Annual Report of 2000,
SEB's report was prepared in accordance with the Annual Accounts Act for Credit
Institution and Securities Companies, the regulations and general advice of the
Swedish Financial Supervisory Authority, and the recommendations of the Swedish
Financial Accounting Standard Council.
Presentation of Financial
Statements
The annual report of SEB started with a briefing on the bank's
present and future economic environment and also contained the board of
directors' report; a presentation of the firm's Operational Profit and Loss
accounts (which was separated from the Statutory Profit and Loss Accounts) the
presentation of the Balance Sheets; followed by a Cash Flow analysis. It is
worth noting that the manner of reporting Operating Profit and Loss Accounts
separately from Statutory Profit and Loss Accounts does not occur in the
financial statements of FöreningsSparbanken, which only published the
Operating profit.
Measurement
Practice
Acquisition or historic cost was the method used in valuing
financial fixed assets at SEB. The bank used the `lower of cost or market'
method to value current assets, with transferable derivatives instruments and
securities in the trading portfolio, as current assets may be valued at market.
This is different from FöreningsSparbanken who valued it at fair value.
Interest bearing securities were accounted for using accrual
accounting over the life of the instrument. Depreciation of tangible fixed
assets was on a straight-line basis, except for equipment leased to clients,
which was normally reported at acquisition value but depreciated on an annuity
basis. Accrual accounting was used to account for financial cost of the
financial liabilities.
Consolidation
Accounting
SEB group includes SEB and each of those companies in which
the bank directly or indirectly holds more than 50% of the voting power of the
shares.
Company acquisition was accounted for using the purchase
method. In acquisitions, goodwill was amortized over its estimated economic
useful life, not exceeding 20 years.
The current rate method was used to translate foreign currency
financial statements into Swedish kroner (the reporting currency). Any
translation difference was recorded in the consolidated profit and loss
account.
It is worth noting that both FöreningsSparbanken and
Skandinaviska Enskilda Banken (SEB) have only adapted to the recommendations of
Financial Supervisory Authority during 2000. For comparism, figures for 1999
and 1998 have been recalculated using these recommendations. One of the reasons
behind this uniformity may be because of the merger plans of both companies
announced at the end of 2000.
4.2
THE GERMANIC ACCOUNTING
4.2.1
Dresdner Bank AB
Dresdner Bank prepared its consolidated financial statements
in accordance with the International Accounting Standards (IASs) of the
International Accounting Standard Committee (IASC). The statements were
prepared under the historic cost convention except for valuation. EU accounting
principles were used within the group to facilitate comparability of statements
prepared by subsidiaries and those of the parent. The parent company's
financial statements were initially prepared in accordance with the Germanic
Commercial Code (Handelsgesetzbuch - HGB) and the German Accounting Directives
for Banks (Rechkredv), which also complied with the provisions of the German
Stock Corporation Act (Aktg).
Presentation of Financial
Statements
Like others, the annual report started with a highlight of the
group's present and future environments, followed by the Directors' report. The
consolidated financial statements began with a presentation of the income
statement, balance sheet, statement of changes in shareholders' equity, and,
finally, a statement of cash flow. Some notes explaining the application of
policies and principles follow the financial statements.
Measurement
Practice
It is the group's policy to report trading assets at market
value. Investment securities were valued at cost. Property and equipment were
recorded at historic purchase or production cost.
Depreciation took the form of straight-line method, with,
building being depreciated over a period of between 25 and 50 years. Office
furniture and equipment were assigned an estimated life span between 4 and 10
years. Any property and equipment taken under operating lease was not reported
in the balance sheet.
Payments made under an operating lease were charged to
administrative expenses using the straight-line method over the period of the
lease.
Goodwill realized on acquisition was capitalized and amortized
on a straight-line basis over a maximum period of 10 years.
Consolidation
Accounting
The consolidated financial statements were made up of results
from the parent and subsidiaries for which the bank owns either more than 50%
of the voting rights or, otherwise, has control over its operation.
The purchase method was used when accounting for acquisitions.
Any investments in associated companies and joint ventures were accounted for
using the equity method.
All foreign currency financial statements for consolidation
are translated using the current rate method (i.e., assets and liabilities were
translated at current exchange rate, while the average exchange rate was used
to translate the income statement). Any translation difference - gain or loss -
was used to adjust the translation reserve and then charged to equity.
4.2.2
Deutsche Bank Ab
Presentation Of Financial Statements
The consolidated financial statement for the parent and the
group has been prepared for the year 2000 including: the consolidated income
statements, the balance sheets; the statement of changes in equity; the cash
flow statement; the notes to the statements; reconciliation statements; and a
risk report.
Measurement
Practice
As for the principles of consolidation, capital consolidation
has been carried out using the book values. Goodwill realized has been
amortized using the straight-line basis. Intra group claims and liabilities,
expenses and profits as well as interim results is eliminated. All dealings
were reported in fair values and changes in fair values are booked to profit
and loss accounts. Shares in related companies, which is not consolidated, were
shown at cost.
Goodwill from corporate acquisitions are amortized largely
over 15 years. If it stems from economically separate business units acquired,
it is amortized on a straight-line basis over five years. Property and
equipment are also accounted for at the cost of acquisition (hence historic
cost). The respective assets are depreciated on a straight-line basis over
their estimated useful lives. In case of declines in values, a write down is
made. Assets and debts denominated in foreign currencies and spot deals not yet
settled are translated at the `spot' mid rate on balance sheet dates. Forward
exchange deals are recorded at a forward rate on balance sheet dates.
Consolidation
Practice
The consolidated financial statements were in accordance with
the International Accounting Standards (IAS) in force on balance sheets dates.
They fulfill both of the conditions of 292 A German commercial code for
exemption from preparation of consolidated financial statements. The
consolidated financial statements applied all existing international accounting
standards in force. Differences between the consolidated financial statements
according to IAS and the German reporting were detailed in the reconciliation
comments. The consolidated financial statements besides that of Deustche Bank
AG (the parent) comprise 117 domestic enterprises, 1061 foreign enterprises, 25
domestic enterprises and 238 foreign enterprises. Two domestic enterprises and
50 foreign enterprises were excluded from the group of consolidated companies.
Capital consolidation was carried out using the book value
method. Goodwill is amortized using the straight-line method.
4.3
THE BRITISH ACCOUNTING
4.3.1 HSBC Bank
Presentation Of Financial
Statements
HSBC`S annual reports and accounts contain the presentation of
both qualitative and quantitative information with regards to the overall
operational and other performance evaluations for the business. The company has
prepared its consolidated financial statement for all its business operations
for the whole of the year 2000. Its consolidated financial statements comprise
financial statements of HSBC and its subsidiaries. A case in point is the
subsidiary in Argentina (HSBC BANK ARGENTINA) whose financial statements are
made by June 30th to comply with local regulations; HSBC used its
audited interim financial statements drawn up to 31st December.
To enhance an understanding of both the companies present and
future financial environment, the company provides a financial highlight of the
operating performance of the firm for a particular period. A five-year
comparison also details the activities of the firm. The financial statements
have been prepared in accordance with UK GAAP and where deviations exist to the
US GAAP, a reconciliatory note is explained in the notes for the financial
statements.
Measurement
Practice
Several items in the financial statements have been valued
using different valuation methods but, generally, the financial statements have
been prepared under the historical cost convention. Tangible fixed assets, land
and buildings have been valued using the valuation or historic cost (less
depreciation), which is calculated to write off the assets over their estimated
useful life. Equipment, fixtures and fittings are also stated at cost, less
depreciation, and are depreciated using their estimated useful life. Assets and
liabilities denominated in foreign currencies are translated into US dollars at
the rate of exchange ruling at the year-end (i.e. the closing day rate).
Goodwill capitalized is amortized over its estimated life on a
straight-line basis. Preparation requires the use of estimates and assumption
for the future, with issues relating to bad and doubtful debts.
Bad debts are written off in parts or in whole when the loss
is confirmed. If the collection of interest in bad debts is considered to be
doubtful, it is suspended and excluded from interest income in the profit and
loss account.
Consolidation
Accounting
The banks consolidated financial statement has been prepared
in accordance with the special Provisions of part VII Chapter II of the UK
Company's Act (1985) relating to banking groups. The consolidated financial
statements comply with schedule 9 and the financial statements of HSBC holdings
(the parent) comply with schedule 4 of the act. As permitted by section 230 of
the act, no profit and loss account of the holdings is presented.
The consolidated financial statements included the financial
statements of HSBC holdings and its subsidiaries. Investments in subsidiary
undertakings were stated at net asset values, including attributable goodwill.
Changes in net assets is accounted for as movements in the revaluation
reserves. Interest in joint ventures is stated as the HSBC share of gross
assets. Goodwill is included in balance sheets as intangible fixed assets.
Capitalized goodwill is amortized over its estimated useful life on a
straight-line basis.
4.3.2 Barclays Bank Plc.
Presentation Of Financial
Statements
Barclays annual reports and accounts are composed of the
traditional consolidated profit and loss account, a statement of total
recognized gains and losses for the financial year, consolidated balance
sheets, consolidated statement of change in reserves, consolidated cash flow
statements, directors reports and notes to the accounts. The parents company's
account is also provided.
Measurement Practice
During the year 2000, accounts are prepared under the
historical cost convention as modified by the revaluations of certain
properties and investments. The bank uses the applicable accounting standards
of the Accounting Standards Board, the pronouncements of its Urgent Issues
Task Force (UITF), and the Statements of Recommended Accounting Practice (SORP)
issued by the British bankers association.
Goodwill arising from the acquisition of subsidiaries and
associated undertakings and joint ventures has been capitalized as an
intangible asset and amortized against profit over its estimated useful life
normally 20 years. Interest in associated undertakings and joint ventures are
included in the consolidated balance sheets at the group's share of the book
values of the net tangible assets of the undertakings concerned.
An associated undertaking is defined as generally one in which
the group owns more than 20 percent of shares, and also exercising significant
influence over the entity's operational and financial policies. A joint venture
is one where the group holds an interest on a long term basis and which is
jointly controlled by the group.
Depreciation of tangible fixed assets is provided on a
straight line basis at an annual rate of 2 % for freehold buildings and long
leasehold property, leasehold property, over the remaining life of the lease,
equipment installed in freehold and leasehold property, 10%, computers and
similar equipment, 20-33 % fixtures and fittings and 20% of other equipments.
Consolidation Accounting
The consolidation accounts have been prepared in compliance
with sections the Company's Act of 1985. The profit and loss accounts and the
balance sheets have been prepared in compliance with section 226 of schedule 4
in to the Company Act of 1985. The consolidated accounts included the accounts
of Barclays PLC and its subsidiaries up to the 31st of December. Interest in
subsidiaries and joint ventures are included in the consolidated balance sheets
at the group's share of book values of the net tangible assets.
Chapter 5
5.1 ANALYSIS
In this part of the work,
we have presented the requirements of the EC Directives, on the areas of
interest to our research; namely, the presentation of financial statements,
measurement practice and consolidation practice. These areas are the focus
areas of the thesis, where we hope to test homogeneity in reporting practice.
We have, therefore, used the Directive to assess compatibility in reporting
practices both within banks in the same country and with banks in different
countries.
Compare EC
And States6(*) E U SE GE
UK
Compliance with
EC and National
Standards7(*)
SE GE UK
Camparism
Within countries
& with other
Countries8(*)
FSPA SEB DRB
DEB HSBC BB
FIGURE 6: PROPOSED COMPARATIVE
FRAMEWORK.
The figure above is a framework of comparisms to be made in
the succeeding section.9(*)
Banks Reporting Practices
Vs The EC Directives.
Here, we analyze how banks apply
the EC Directive, using the Fourth and Seventh Directives, which are financial
reporting legislation for companies within the European Union.
Presentation Of Financial Statements
This area is dealt with in Article 2.5 of the fourth
directive, which requires a fair application ensured by the concept of
prudence. According to article 2.3 of the EC directives, the annual accounts
shall give a true and fair view of the assets, liabilities, financial position
and the profit and loss of the company. Where application of the provision in
the directive is not sufficient to give a true and fair view, Article 2.4
requires that additional information must be given.
The fourth directives requires European companies to separate
their assets into «current assets» and «fixed assets», but
also does not disagree with the use of IAS, which states that companies can
present their assets in order of liquidity.10(*)
Assets of some banks are separated into current and fixed
assets, and in order of liquidity. This is the case with HSBC Holdings, where
assets are separated into fixed and current assets, and also listed in order of
liquidity. Barclays does not distinguish between current and fixed assets,
rather they present them in order of liquidity. Although the balance sheets of
SEB does not separate the assets into current and fixed assets, they are
presented in order of liquidity as recommended by the directive, and in
accordance with paragraph 53 of the IAS.
Dresdner does not separate assets into current and fixed
assets, but presents them in order of liquidity. Deustche bank does not
differentiate its assets into current and fixed assets but are presented in
order of liquidity. Föreningsparbanken has not separated its assets into
current and fixed assets, but has presents them in order of liquidity starting
with cash and ending with prepayments and accrued income.
According to the directive, financial statements should be
composed of profit and loss accounts, balance sheets and notes to the
accounts. The statement of the changes in equity is not a requirement, but also
does not go against the directive because the contact committee recognizes the
fact that such a statement attaches more meaning to financial statements. Also,
although the directive does not expressly mention the inclusion of a cash flow
statement as an item in the financial statement, the directive does not exclude
their presentation.
HSBC holdings presents the consolidated profit and loss
accounts, balance sheets, statements of total consolidated recognized gains and
losses, consolidated cash flow statement and notes to the accounts. The profit
and loss account and the balance sheet of Barclays PLC are being prepared in
compliance with section 226 and schedule 4 of the Company's Act. The
consolidated accounts of Barclays include the consolidated profit and loss
accounts, statements of total recognized gains and losses, consolidated balance
sheets, consolidated statements of changes in reserves, consolidated cash flow
statement, the parent company accounts and the notes to the accounts.
SEB has prepared the following in their consolidated financial
statements: the profit and loss accounts, the balance sheets, the cash flow
statements and the notes to the accounts. Föreningsparbanken, on the other
hand, discloses on their financial statements the profit and loss accounts, the
balance sheets, statements of cash flows, notes to the accounts, and proposed
profit disposition.
Article 43.1(9) of the fourth directive requires European
companies to disclose « the average number of persons employed during the
financial year, broken down by categories.» SE discloses the average
number of employees according to categories. In the annual reports this
information has is broken down between the parent and the group and separated
and broken down among nations, and between men and women. Further details are
given with regards to salaries and remuneration to employees, general
administrative and other cost to staffs, loans to employees, pension staffs,
and much other information concerning the employees.
Barclays discloses the average number of employees employed
during the year by the group. Further explanation is given of the total
administrative expenses accrued to them per category. Pension plans; profit
sharing facilities and other staff costs have all been explained in the
company's annual reports. All further administrative expenses have all been
included.
HSBC outlines the average number of person's employed during
the financial year and makes a comparison with the previous years. The specific
categorization specified here is on the financial sector as a whole, no matter
whether it is from either the commercial banking or the investment banking
sectors. The bank further gives information on cost accrued to them for example
wages, salaries, social security cost, pension and other cost. Benefits accrued
to employees upon retirement is also specified.
Deutsche bank discloses the average number of employees
employed during the year and further divides it into gender. Also,
specification is made as to the number who work part time and full time, and
also the number that work abroad. Further explanation is given about their
provisions for pension obligations and staff cost.
Föreningsparbanken discloses the average number of
employees it employs per year, and specifies according to gender and age
categoies. Their academic levels and positions are also specified in their annual
reports.
MEASUREMENT PRACTICES
In dealing with depreciation, the fourth directive states that
the purchase price or production cost should be the basis for depreciation. As
stated above, Article 35.1(c) (bb) of the directive requires fixed assets to be
valued at a lower figure on the balance sheet dates, if it is expected that the
reduction in their values is permanent.
Article 35.1 (b) is a requirement that fixed assets with a
finite life are depreciated over that life. SEB reports its fixed assets using
the purchase or acquisition cost and depreciates them according to
straight-line basis. Equipment's leased to clients is reported at acquisition
value and is depreciated on an annuity basis. As with SEB, the other banks
report fixed assets using historic cost, and depreciate them on a straight-line
basis. The only exception is for leased equipments, where only
Föreningsparbanken follows the SEB policy of using the annuity method,
instead of the straight line method as used by the other banks.
Article 37.1 of the fourth directive addresses the treatment
of research and development costs. Each member country has the power to decide
on this issue. However, it is possible to capitalize both the research and
development costs, against the provision of International Accounting Standards,
which makes it a must for development costs to be capitalized and rejects the
capitalization of research
costs.
CONSOLIDATION ACCOUNTING
Accounting for consolidation is addressed in the seventh
directive. The directive requires consolidated accounts to be prepared in
situations where an entity holds the majority of the voting rights in another
enterprise.1(*)1 In this
case, the parent company has the right to appoint the majority of the members
of the administrative, management or supervisory body of the subsidiary. The
main idea is to make sure a true and fair picture of the consolidated entity is
presented. Thus, any undertaking whose inclusion would impair the true and fair
view of the financial position of the group should be excluded from the
consolidated account.
In Sweden, SEB prepares its consolidated accounts with
companies where they own 50 % of the voting rights of the company. The bank
does not consolidate companies it has taken over with loan foreclosures,
provided they are engaging in deviating activities or are planned to be sold in
the short term. Föreningsparbanken, on the other hand, consolidates only
those companies in which the bank directly or indirectly owns more than 50 %
the voting rights of the shares. The consolidated accounts also include
associated companies; that is those which the bank directly or indirectly owns
more than 20% of the voting rights of the shares. Companies in which the bank
owns more than 50 percent are consolidated according to the purchase method
while those where the bank owns more that 20 % that is associated companies are
consolidated using the equity method.
In Germany, Dresdner Bank consolidates subsidiaries in which
the bank directly or indirectly has more than 50 % of the voting rights or
otherwise has control over its operations. Such subsidiaries are consolidated
from the day on which the group has control over its operations. On the other
hand, Deustche Bank consolidates companies according to the number of
shareholdings in them. Some were not consolidated as the idea of voting rights
is restricted or the shares are held for reasons of subsequent disposal. This
is in accordance with IAS 27. consolidation has been carried out by Deustche
Bank using the book value.
In the United Kingdom, The consolidated accounts of Barclays
Bank include the accounts of Barclays PLC and its subsidiary undertakings as of
the 31st of December. The companies included are those in which the
group exerts significant influence over the entities operating and financial
policies. For HSBC, the consolidated financial statements include the financial
statements of HSBC holdings and its subsidiary undertakings. The consolidated
financial statements include the attributable share of the results and reserves
of joint ventures and associates.
5.2 SUMMARY OF FINDINGS
With regards to the measurement practices, all banks use the
historic cost as a basis for valuation of fixed assets. Tangible fixed assets
are also depreciated on a straight-line basis in all the banks, although the
number of years may differ among different banks. Most of the banks used the
fair values to value financial current assets, except Foreningsparbanken and
Dresdner Bank who used the `lower of cost and market value'.
In all the banks, transferable derivatives were either valued
at fair or market values. Goodwill was frequently amortized with variations
based mostly on the number of years in which they were amortized. Frequently,
the time frame used is between 10 to 20 years, as seen in the table.11(*) However,
Föreningsparbanken specified no basis for reporting goodwill.
Research and development costs have not been addressed in most
banks. However, FöreninsSparbanken records research and development costs
when the amount is reasonable, while Dutsche Bank capitalizes research and
development costs only on information technology. 12(*)
Looking at the all the banks consolidation policies, full
consolidation is mostly carried out where the parent owns more than 50 % or
where the bank has more shareholdings and exercises significant influence on
the policies of the subsidiary or associate in question. Acquisition was mostly
through the purchase method of accounting. Translation of foreign currency
financial statement is mostly conducted using the current rate method. The only
exception is the Deustche Bank, which uses the spot-mid-rate. Translation
differences are either carried forward to equity, or to the profit and loss
accounts, or to the reserves, with each having different effects on the balance
sheets results. Shares in associated companies are treated using the equity
method in all cases.
There are significant differences with regards to the
accounting policies used by the different banks. The two German banks use the
International Accounting Standards (IAS) published by the International
Accounting Standards Committee (IASC).
The two Swedish banks use the regulations and general advice
of the Swedish Financial Supervisory Authority, and the recommendations of the
Swedish Financial Accounting Standard Council.
Both British banks use the Company Act and the UK GAAP, and
also the applicable accounting standards of the accounting standards board.
Comparism Of Bank's
Financial Statement
|
|
Banks
|
FöreninsSp.
|
SEB
|
Deutsche
|
Dresdner
|
Barclays
|
HSBC Holdings
|
|
|
|
|
|
|
|
Measurement Practice
|
|
|
|
|
|
Items:
|
|
|
|
|
|
|
Fixed assets
|
Historic cost
|
Historic cost
|
Historic cost
|
Historic cost
|
Historic cost
|
Historic cost
|
|
|
|
|
|
|
|
Financial curr. Assets
|
Lower-of-cost
|
|
|
|
|
|
|
Or market
|
Fair value
|
Fair value
|
Market value
|
Fair value
|
Fair value
|
|
|
|
|
|
|
|
Transferable Derivatives
|
Fair value
|
Market value
|
NA13(*)
|
Market value
|
Fair value
|
Market value
|
|
|
|
|
|
|
|
Interest yield security.
|
Accrual
|
Accrual
|
NA
|
Nominal present.
|
NA
|
|
|
|
|
Value
|
Value
|
|
Depreciation:
|
|
|
|
|
|
|
Tangible fixed assets
|
Straight-line
|
Straight-line
|
Straight line
|
Straight-line
|
Straight line
|
Straight line
|
Leased equipment
|
Annuity
|
Annuity
|
Straight line
|
Straight-line
|
Straight line
|
Straight line
|
|
|
|
|
|
|
|
Goodwill amortization
|
No basis
|
20yrs.
|
15yrs.
|
10 yrs.
|
20 yrs.
|
15 yrs.
|
|
|
|
|
|
|
|
R&D
|
Capitalized
|
|
Capitalized
|
|
|
|
|
Except IT
|
NA
|
IT
|
NA
|
NA
|
NA
|
|
|
|
|
|
|
|
Consolidation Practice
|
|
|
|
|
|
Items:
|
|
|
|
|
|
|
Full Consolidation
|
>50% rights
|
>50% rights
|
50% rights
|
>50% rights
|
50% rights 50% rights
|
|
|
|
|
|
|
|
Acquisition
|
Purchase
|
Purchase
|
Purchase
|
Purchase
|
Purchase
|
Purchase
|
|
Method
|
Method
|
Method
|
Method
|
Method
|
Method
|
|
|
|
|
|
|
|
Translation
|
Current rate
|
Current rate
|
Spot mid
|
Current rate
|
Current
|
Current rate
|
|
Method
|
Method
|
Rate14(*)
|
Method
|
Method
|
Method
|
|
|
|
|
|
|
|
Associated company15(*)
|
Equity
|
Equity
|
Equity
|
Equity
|
Equity
|
Equity
|
|
Method
|
Method
|
Method
|
Method
|
Method
|
Method
|
|
|
|
|
|
|
|
Translation difference
|
To equity
|
To equity
|
quity/P&L
|
To equity
|
Reserves /
|
Reserves and
|
|
|
|
|
|
P&L
|
P&L
|
Accounting Principle
|
AACS/SFSA
|
AACS/SFSA
|
IAS
|
IAS
|
SSAP/SORP
|
FRS/UK GAAP
|
|
SFASC
|
SFASC
|
|
|
UITF
|
|
FIGURE 7: SUMMARY OF FINDINGS.
Chapter 6
6.1 CONCLUSION
It is important to note the compatibility of theory with our
findings. European countries have been grouped in to cultural groups (Nordic,
Germanic, and Anglo-Saxon) by Radebaugh and Gray (1997) of based on a similar
reporting tradition. The findings show that it is no longer the issue of
cultural groupings. Banks reporting practice is now very much influenced by the
regulations of the stock markets where they seek listing or where they are
listed. This assertion matches with Nobes and Robert's (1998) findings that
although the Netherlands practices Roman law, its reporting culture is similar
to the UK. It is in this light that we fit the relevance of our findings that
three very significant factors; namely, company culture, laws and regulations,
and international business environment affect, very much, the company reporting
practice.
The banks are building a strong culture based on their
reporting needs. Although laws and regulations hinder this cultural building,
most banks are very much interested in gaining protection against the high
competition within the international banking industry of today. Most banks are
gradually shifting from geographical groupings to market oriented, and acting
in the company's interest. The practice differs from theories to some
extent.
Another significant difference between practice and theory is
seen in the `Art' of reporting. Although two banks may use the same accounting
standards16(*), many
differences arise from the interpretation and application of these standards.
Also, we have discovered that compatibility is not achievable when the
standards give room for too many optional principles.
It is difficult to draw a line on whether the annual accounts
provided by a particular bank is the best. This is because a satisfactory
information to be obtained from any financial statements depends greatly on the
needs of the user of such statements. Any conclusion on this aspect is
therefore subjective. Considering that quality it self means fitness for
purpose, the user who does not find specific information of interest on the
annual report considers such a report to be of low quality. There are too many
variables to draw a line on this issue.
6.2 CONCLUDING NOTE
As a concluding note, the statement that «Standards
have brought about uniform reporting within the EU banking sector» is
untrue. However, standards have helped to increase harmonization and reduce
divergence-reporting policies. Banks within one country and within one-security
markets have proven to have more comparable reporting policies and
practices.
6.3 LOOKING TO THE FUTURE
MNEs
local enterprises
IASs EC Directives
FIGURE 8: ACCOUNTING STANDARDS OF USE
BY LOCAL AND MNES BY 2010
The figure above illustrates that by 2010 the accounting
Directive of the European Commission will be redirected to regulating reporting
practices of Banks operating within the EU territory. This is because the
standards will be inappropriate to be used by global Banks as most of them will
be using the International Accounting Standards (IASs) of the International
Accounting Standards Committee. The use of IASs has already been expressed in
our case by the German banks. Another probability is for the EC to completely
duplicate the IASs into the EC Directive. (See projectile in above diagram).
An activity like this will not be helpful in that it will only increase the
amount of paper work and papers available; yet, another waste of the limited
resources. Consequently, it is most likely that the International Accounting
Standards will be used by all global Banks.
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2000 Annual Reports of the following
banks:
FöreningsSparbanken Ab
kandinaviska Enskilda Banken (S.E.B.) Ab
Barclays Bank Plc.
HSBC Holdings
Dresdner Bank Ab
Deutsche Bank Ab
World wide web-sites
www.icai.org/as1.html
http://www3.bus.osaka-cu.ac.jp
http://www.bba.org.uk
http://www.vuw.ac.nz
http://www.imf.org
http://www.bis.org.
* 1 Stock markets in which the
bank is listed or where the bank seeks listing.
* 2 Standards of the foreign
country where the firm seeks listing.
* 3 It is presumed that these
banks use the EU Directives as reporting standards.
* 4 The EU Directives in our
case.
* 5 This accounting area is
covered in the 4th and 7th Directives
* 6 An institutional
framework.
* 7 Harmonization framework
* 8 Application framework.
* 9 EU has been used for
European Union, SE; for Sweden, GE; for Germany, UK for the United Kingdom,
FSPA for FöreninsSparbanken, SEB; for Scandinaviska Eskilda Banken, DRB;
for Dresdner Bank, DB; for Deutsche Bank, and BB; for Barclays Bank. These
abbreviations may not be the official ones in some cases They have been used
inorder to make them fit into the diagram.
* 10 See last sentence of
paragraph 53 of the IAS.
* 11 The voting rights does not
necessarily mean majority of share capital. A majority in this case is taken to
mean a simple majority,
* 11 See `Summary of Findings'
table below.
* 12 The Bank has a principle
of recording research and development costs if the amount is reasonable
(material)
* 13 NA is used to mean `Not
Available' i.e. the annual report does not make specific disclosure in the
area.
* 14 Spot Mid-rates on the
respective balance sheet date (reporting date method).
* 15 Percentage of holdings in
Associated Company varies with countries and banks.
* 16 As in SEB and
FöreninsSparbanken, Deutsche and Dresdner, HSBC and Barclays.
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