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Dr. David Grünberger, CPA Austrian Financial Market Authority

Adoption of IFRS in the Banking Sector Austrian Case Study REPARIS Workshops on Accounting and Audit Regulation, Vienna. Dr. David Grünberger, CPA Austrian Financial Market Authority. Background. European Legal Framework IAS-Regulation 1606/2002: covers 24 Austrian banking groups as of 2007

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Dr. David Grünberger, CPA Austrian Financial Market Authority

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  1. Adoption of IFRSin the Banking SectorAustrian Case StudyREPARIS Workshops on Accounting and Audit Regulation, Vienna Dr. David Grünberger, CPA Austrian Financial Market Authority

  2. Background • European Legal Framework • IAS-Regulation 1606/2002: covers 24 Austrian banking groups as of 2007 • Supervision: recast Capital Requirements Directive 2000/12/EC (CRD) • Current Austrian Legal Framework • Austrian GAAP: mandatory for separate financial statements (taxation etc.) • Consolidated accounts: IFRS; Austrian GAAP allowed • Regulatory capital requirements: • Based on Austrian GAAP: solo and consolidated supervision • Change to IFRS: conceptual work and drafting of legal texts finalised

  3. Change of Regulatory Capital to IFRS • Factors considered by Banks • Foreign subsidiaries use IFRS – monthly conversion to Austrian GAAP • Product pricing: introduction of IFRS influences European price structure • Factors considered by Supervisor •  22 EU-member states will use IFRS for regulatory capital • Harmonised calculation base through IFRS • Quality aspect: national GAAP’s have little international reputation • National level playing field: treat GAAP/IFRS-banks equally

  4. Main Austrian Problems • Two accounting standards for cap-requirements within one group? • Every asset would have two exposure values • Duplicate internal control and limit-systems? • Product pricing? • Double day-to-day bookkeeping? • Solution: IFRS for consolidated and solo requirements, additional separate IFRS-statements for solo-requirements (≈ consolidation packages!) • Use of IFRS optional; banks plan change after Basel II • All entities of the group must use IFRS simultaneously: regulatory arbitrage by intra-group transactions

  5. Use and Extent of Prudential Filters • Matching of IFRS equity/liabilities under IFRS to CRD-definitions of funds • Direct IFRS-rules (Art. 64.4): cash flow hedge reserve/FVO-gains on liabilities • Indirect – by analogy: fair value accounting ~ T2-revaluation reserve (AFS, IAS 40) – take account of deferred taxes! • CRD: re-treatment of reserves “as a whole” – filter asset per asset not required; rather based balance sheet value (Art. 78; Annex VII Part 3)

  6. Austrian IFRS-Impact Analysis

  7. Results • Conceptual work finished and agreed between banks and supervisor • Further step in accounting convergence • Boundaries: • Insufficient IFRS-guidance in CRD • Few Austrian reform-efforts on using IFRS for separate financial statements • Reduced quality of accounting through 2 co-existing accounting standards

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