International Standards

International Financial Reporting Standards (IFRSs)

In everyday usage, the term 'International Financial Reporting Standards' (IFRSs) has both a narrow and a broad meaning. IFRSs as defined in Standards Paragraph 7 of IAS 1 Presentation of Financial Statements defines IFRSs as comprising: International Financial Reporting Standards International Accounting Standards IFRIC Interpretations SIC Interpretations IFRS 1-13 International Accounting Standards IAS 1-41 IFRIC Interpretations

IFRIC 1-20 SIC Interpretations

SIC 1-33 Meaning of 'International Financial Reporting Standards' General use of the term In everyday usage, the term 'International Financial Reporting Standards' (IFRSs) has both a narrow and a broad meaning. Narrowly, IFRSs refers to the new numbered series of pronouncements that the IASB is issuing, as distinct from the International Accounting Standards (IASs) series issued by its predecessor. More broadly, IFRSs refers to the entire body of IASB pronouncements, including standards and interpretations approved by the IASB and IASs and SIC interpretations approved by the predecessor International Accounting Standards Committee. IFRSs as defined in Standards Paragraph 7 of IAS 1 Presentation of Financial Statements defines IFRSs as

comprising: International Financial Reporting Standards International Accounting Standards IFRIC Interpretations SIC Interpretations http://www.iasplus.com/en/standards INTERNATIONAL STANDARDS FOR BANKS

IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions The objective of IAS 30 is to prescribe appropriate presentation and disclosure standards for banks and similar financial institutions (hereafter called 'banks'), which supplement the requirements of other Standards. The intention is to provide users with appropriate information to assist them in evaluating the financial position and performance of banks, and to enable them to obtain a better understanding of the special characteristics of the operations of banks. Presentation and Disclosure A bank's income statement should group income and expenses by nature. [IAS 30.9] A bank's income statement or notes should report the following specific amounts: [IAS 30.10]

interest income interest expense dividend income fee and commission income fee and commission expense net gains/losses from securities dealing net gains/losses from investment securities net gains/losses from foreign currency dealing other operating income loan losses general administrative expenses other operating expenses.

A bank's balance sheet should group assets and liabilities by nature and list them in liquidity sequence. [IAS 30.18] IAS 30.19 sets out the specific line items requiring disclosure. IAS 30.13 and IAS 30.23 include guidelines for the limited circumstances in which income and expense items or asset and liability items are offset. A bank must disclose the fair values of each class of its financial assets and financial liabilities as required by IAS 32 and IAS 39. [IAS 30.24] Disclosures are also required about:

specific contingencies and commitments (including off-balance sheet items) requiring disclosure [IAS 30.26] specified disclosures for the maturity of assets and liabilities [IAS 30.30] concentrations of assets, liabilities and off-balance sheet items [IAS 30.40] losses on loans and advances [IAS 30.43] general banking risks [IAS 30.50] assets pledged as security [IAS 30.53].

ACCOUNTING STANDARDS RELATED TO BANKING In India, the Accounting Standards are formulated by Accounting Standards Board under the authority of the Council of the Institute of Chartered Accountants of India (ICAI), with a view to harmonize the diverse accounting policies and practices followed by various organisations including financial intermediaries. While formulating these Standards, consideration is given to the International Accounting Standards. It is expected by ICAI that the business organisations (including Banks) as well as the Accountants responsible for preparation of the financial statements, must prepare the same with prudence and taking into account the guidelines of ICAI. RBI Role: To ensure convergence of its supervisory norms and practices with the international best practices with a view to aligning standards adopted by the Indian banking system with global standards, RBI has issued guidelines to be taken into account by the banks. In order to identify gaps in compliance, with the Accounting Standards (AS) and eliminate / reduce the gaps, a Working Group was constituted under the Chairmanship of Shri N.D. Gupta, Former President of ICAI. Its recommendations have been accepted and RBI has issued detailed guidelines to banks on their recommendations. Applicability for banks: Presently, the Accounting Standards No. AS 1, AS 15, AS 17, AS 18, AS 21, AS 22, AS23, AS 24, AS 25, AS 26, AS27, AS 28 and

AS29 Whenever specific difference in opinion arises among the auditors, the Statutory Central Auditors would take a final view. Persisting difference, if any, could be sorted out in prior consultation with RBI, if necessary. RBI has advised banks that any qualifications in the financial statements of banks for non compliance with any Accounting Standard will be viewed seriously by the Reserve Bank. Non-compliance: The Statutory Central Auditors report on banks' noncompliance with some of the Accounting Standards in the Auditors' Reports attached to the balance sheets and the qualifications could affect the confidence of the users of the financial statements, viz., counter party banks, host country regulators of foreign branches of Indian banks, national and international rating agencies etc., in the integrity of the published results.

Probable Impact of Less Disclosure by Indian Banks The banking sector in India is slated to open its door to foreign players in the year 2009 to the full extent as the restrictions on the number of branches that a foreign bank can open (currently 24 per year) will no longer exist. With increased presence of foreign players in this sector the competition is going to be intense. These banks will bring with them the best practices from across the globe to gain a competitive edge over Indian banks. Citibank, Standard Chartered Bank and HSBC Bank have already captured a significant chunk of business in a short span of time despite the limitation on the number of branches which they can open. If Indian banks have to compete with these banks they need to be in a much stronger position than they are presently for the following reasons. Business across borders is increasing at a fast pace and the multinational companies coming to operate in India will like to engage with the banks which have a high degree of corporate governance and are financially sound. Disclosure norms can play a crucial role in building an image in the mind of these companies. Though the current Indian shareholders don't care much about the disclosures made by the banks as is proved in the second part of the article, the situation is not going to remain the same with shareholders becoming increasingly informed about their rights. Also, if the Indian banks need to access the foreign markets to raise capital at a much cheaper rate they have to give a serious thought to disclosure norms. The investors in the developed markets are much more informed and demanding than their Indian counterparts and view corporate governance practices as a starting point before putting their monies anywhere. Though it is quite clear that Indian banks' disclosure is very low when compared to banks in most other countries, a question remaining to be answered is whether

the shareholders of these banks actually worry about the lack of disclosure and how they react to new norms which the Reserve Bank of India (RBI) has come up with periodically. http://tejas-iimb.org/articles/27.php http://www.bis.org/publ/bcbsca.htm