Banks face balancing act between supervisors and accountants.
Europe’s banks are being pulled in two directions. Supervisors want prudence, while financial reporting standards demand neutrality.
A new paper from Accountancy Europe lays out where the two approaches converge and clash.
Supervisors, such as the European Central Bank, push for conservative treatments to safeguard solvency and stability. International Financial Reporting Standards (IFRS), by contrast, aim to provide investors with neutral, comparable information across borders. The goals overlap at times, but not always neatly.
The report highlights both sides of the ledger. IFRS 9 Stage Transfers for impairment, and Fair Value Measurement under IFRS 13, for example, show some areas of alignment with supervisor reporting. But supervisory provisioning requirements and non-performing loan guidance create conflicts. The same balance sheet can tell two very different stories depending on who is reading it.
Accountancy Europe’s conclusion is straightforward: harmonisation has limits. Supervisory expectations may inform reporting, but they cannot override IFRS. In practice, the burden falls on management and auditors to navigate the gap, weighing prudence against comparability, without losing sight of either. {Ed — nothing all that new here: prudential regulators need more, and get more than markets. They have to hold that information confidentially, not least, perhaps, because of the conservative approach to M2M and a range of other issues. Still a very useful piece.}
Read the full analysis from Accountancy Europe here.
