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.
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