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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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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.

* 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.

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