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

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	NA^13(*)	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	Rate^14(*)	Method	Method	Method
Associated company^15(*)	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.