The Use of IFRS for Prudential and Regulatory Purposes Analysis of IFRS Annual Reports. IFRS REPARIS Seminar Vienna, May

Transcription

1 The Use of IFRS for Prudential and Regulatory Purposes Analysis of IFRS Annual Reports IFRS REPARIS Seminar Vienna, May

2 Overview» Concentration on specifics of IFRS-accounting issues with special relevance to banking supervisors» General approach» Main features Situation of risk Provisioning for risk Measurement Impact on accounting capital» Example Annual Report of Commerzbank (31/12/2009) 1

3 Analysing IFRS Annual Reports» IFRS accounting rules, although principal based as per se, have strict rules in many cases Loan loss impairment Mixed measurement model Reclassification» Many of these rules have a significant impact on the presentation of the economic situation of a bank in their annual accounts and the reported capital» Analysis of IFRS based annual reports has to focus on specifics compared to national GAAP 2

4 Analysing IFRS Annual Reports» Besides a general analysis of the situation of a bank regarding for example - Business model - System of risk management - Portfolio structure - Refinancing - Liquidity - Capitalization in general an analysis of an annual report based on IFRS has to focus on - Classification of assets and liabilities - Impairment approach - Measurement model - Fair Value Hierarchy: distribution of items among level 1 to 3 - Items with relevance to Prudential Filters (or in general which could impact capital quality for supervisory purposes) 3

5 General issues in analysing IFRS financial statements» Minor presentation requirements are built-in IAS 1 (Presentation of Financial Statements) which weakens comparability of annual reports of banks within their peer group No special formats for balance sheet and P/L for banks in IFRS (as it is in German GAAP for example) Some requirements in IAS 39 (Financial Instruments: recognition and measurement) and IFRS 7 (Financial Instruments: disclosures) Most of information required has no specific location and format Presentation of line items in the balance sheet could be along - Customer relations - Financial instrument classes - Measurement attributes 4

6 General problems analysing annual reports on the basis of IFRS (cont d)» Measurement attributes within one line item could be mixed» Impairment rules: requirements of IFRS are strict question of appropriateness of provisioning level» Formats of annual reports are mostly light: main information is concentrated in the notes which are from different length and quality 5

7 Example: consolidated annual accounts of Commerzbank 2009» 2 nd largest German banking group» Consolidated accounts prepared under IFRS since 1998» Commerzbank demonstrates good skills in preparing and presenting their annual accounts» 2009 annual report consists of more than 330 pages» Commerzbank s Group Financial Statement information is more than 120 pages long including 110 pages of Notes» IFRS accounts of Commerzbank are used as the basis for supervisory calculation of minimum capital requirements on a consolidated level 6

8 Commerzbank IFRS financial report

9 8

10 1 1 Most of the passages of the notes shown are excerpts. 9

11 Information on Assets 10

12 11

13 12

14 13

15 14

16 Reclassification information within Note 52 (Financial Assets) 15

17 16

18 Information on loans and provisioning

19 18

20 Information on provisioning regards equity instruments 19

21 20

22

23 22

24 Information on Measurement 23

25 24

26 25

27 26

28 27

29 Information on various aspects of results 28

30 29

31 30

32 Information on balance sheet capital 31

33 Conclusions» Presentation of IFRS annual report is diverse for each bank» Analysis of IFRS annual report is special for each bank» Figures have to be interpreted» Main information in the Notes» Information is distributed in the Notes» Information to one and the same aspect could be given in several Notes» Sometimes plausibility checks between figures are difficult» Analysis is complex and time consuming» Broad IFRS-skills necessary for banking supervisors» Comprehensive assessment needs high volume of analysis capacity» Often enquiry calls at the bank and/or banks auditors are necessary 32