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Harmonisation of accounting standards: disclosure policies and practices of european commercial banks

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par Michael Forzeh Fossung
Gothenburg University - Master of Science (MSc) Accounting 2002

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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.

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