Harmonisation of accounting standards: disclosure policies and practices of european commercial banks
par Michael Forzeh Fossung
Gothenburg University - Master of Science (MSc) Accounting 2002
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.
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).
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.
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.
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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