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IFRS 9 – Illustrative Disclosures for Banks

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IFRS 9 – Illustrative Disclosures for Banks IFRS Guide to annual financial statements: IFRS 9 – Illustrative disclosures CA GOING CONCERN OPERATING SEGMENTS OPERATING for banks BUSINESS COMBINATIONS UNCONSOLIDATED STRUCTURED ENTITIES STRUCTURED UNCONSOLIDATED DISCLOSURES OCIPERFORMANCE SIGNIFICANT FINANCIAL POSITION SHARE-BASED PAYMENT SHARE-BASED POSITION FINANCIAL STATEMENT SH FLOWS SH SUBSIDIARY March 2016 IFRS DISPOSAL ASSETS EQUITY kpmg.com/ifrs FAIR VALUE OPERATING SEGMENTS PRESENTATION NON-CONTROLLING INTERESTS ESTIMATES PROPERTY PROVISIONS LEASES FINANCIAL RISK MANAGEMENT OFFSETTING ACCOUNTING POLICIES JUDGEMENT SHARE-BASED PAYMENT PERFORMANCE CARRYING AMOUNT ACQUISITION TRANSACTIONS FINANCIAL INSTRUMENTS UPDATE SHARE-BASED PAYMENT ACCOUNTING POLICIES LOANSBORROWINGS FINANCIAL POSITION CASH FLOWS IMPAIRMENT EPS FUNCTIONAL CURRENCY JOINT ARRANGEMENTS FAIR PRESENTATION PENSION PROFIT OR LOSS IFRS POSITION FINANCIAL ASSUMPTIONS ASSUMPTIONS DEPOSITS FINANCIAL RISK MANAGEMENT BANKSDERIVATIVES PRESENTATION GROUP CONSOLIDATION DISCLOSURES IFRS PROFITORLOSS PRESENTATION LIABILITIES GOODWILL FAIR VALUE COMPARATIVE NOTES BUSINESS COMBINATIONS IFRS9 FAIR VALUE MEASUREMENT CASH EQUIVALENTS HELD-FOR-SALE LOANS AND ADVANCES ACCOUNTING POLICIES CONTINGENCY RELATED PARTY DERIVATIVES ESTIMATES DEPOSITS FROM BANKS STRUCTURED ENTITY GOING CONCERN PERFORMANCE MATERIALITY EQUITY PENSION PROFIT OR LOSS DEBT CONSOLIDATION OFFSETTING INVENTORIES OFFSETTING TRADING ASSETS CAPITAL COMPARATIVE VALUATION UPDATE ASSETS MATER IALITY FAIR VALUE CGU OCI NCI PENSION Contents About this guide 2 Independent auditors’ report 4 Consolidated financial statements 6 Financial highlights 7 Consolidated statement of financial position 8 Consolidated statement of profit or loss and other comprehensive income 10 Consolidated statement of changes in equity 12 Consolidated statement of cash flows 14 Notes to the consolidated financial statements 16 Appendix I 185 Presentation of comprehensive income – Two-statement approach 185 Acknowledgements 187 Keeping you informed 188 Notes Basis of preparation 16 Accounting policies 152 1. Reporting entity 16 43. Basis of measurement 152 2. Basis of accounting 16 44. Changes in accounting policies 153 3. Functional and presentation currency 16 45. Significant accounting policies 155 4. Use of judgements and estimates 16 46. Standards issued but not yet adopted 184 Financial risk review and fair value 18 5. Financial risk review 18 6. Fair values of financial instruments 60 Performance for the year 72 7. Operating segments 72 8. Net interest income 76 9. Net fee and commission income 77 10. Net trading income 78 11. Net income from other financial instruments at FVTPL 79 12. Other revenue 80 13. Losses arising from derecognition of financial assets measured at amortised cost 81 14. Personnel expenses 82 15. Other expenses 89 16. Earnings per share 90 Income taxes 91 17. Income taxes 91 Assets 96 18. Financial assets and financial liabilities 96 19. Cash and cash equivalents 105 20. Trading assets and liabilities 106 21. Derivatives held for risk management and hedge accounting 108 22. Loans and advances to banks 118 23. Loans and advances to customers 119 24. Investment securities 121 25. Property and equipment 123 26. Intangible assets and goodwill 124 27. Other assets 126 Liabilities and equity 128 28. Deposits from banks 128 29. Deposits from customers 129 30. Debt securities issued 130 31. Subordinated liabilities 131 32. Provisions 132 33. Other liabilities 134 34. Capital and reserves 135 Group composition 136 35. Group subsidiaries 136 Other information 137 36. Involvement with unconsolidated structured entities 137 37. Transfers of financial assets 138 38. Contingencies 142 39. Related parties 143 40. Operating leases 144 41. Subsequent events 145 42. Financial risk management 146 2 | Guide to annual financial statements: IFRS 9 – Illustrative disclosures for banks About this guide This guide has been produced by the KPMG International Standards Group (part of KPMG IFRG Limited) and the views expressed herein are those of the KPMG International Standards Group. INTRODUCTION It helps you to prepare financial statements in accordance with IFRS, illustrating one possible format for financial statements based on a fictitious banking group involved in a range of general banking activities. Our hypothetical corporation (the Group) has been applying IFRS for some time – i.e. it is not a first-time adopter of IFRS. For more information on adopting IFRS for the first time, see Chapter 6.1 in the 12th edition 2015/16 of our publication Insights into IFRS. Standards covered This guide illustrates example disclosures for the early adoption of IFRS 9 Financial Instruments and of consequential amendments to other standards, which are required to be adopted at the same time. It assumes that the Group has not adopted the hedge accounting requirements of IFRS 9 but continued to apply hedge accounting requirements of IAS 39. With the exception of IFRS 9, other standards or amendments that are effective for annual periods beginning after 1 January 2015 (‘forthcoming requirements’) are not illustrated in this guide. Our IFRS: New standards – Are you ready? provides a summary of newly effective and forthcoming standards (in addition to IFRS 9). AUDITORS’ REPORT AUDITORS’ Accordingly, except for the early adoption of IFRS 9, this guide reflects IFRSs in issue at 31 December 2015 that are required to be applied by an entity with an annual period beginning on 1 January 2015 (‘currently effective requirements’). IFRS 9 is a new and complex standard, and the interpretation of its requirements is subject to ongoing discussions between preparers, auditors, regulators and other stakeholders. This guide does not intend to pre-empt this process and provide a view on how the requirements of the standard should be interpreted. Instead, it gives an indication of possible disclosure requirements that would apply if a bank interpreted the requirements in a particular way. It is intended to help banks implement IFRS 9, by guiding them through the decision-making process needed to prepare the required disclosures. This guide is not intended to be seen as a complete and exhaustive summary of all disclosure requirements under IFRS. Instead, it focuses on disclosure requirements that are particularly relevant to banks. For examples of other disclosures, see our Guide to annual financial statements – Illustrative disclosures (September 2015). In addition, IFRS and its interpretation change over time. Accordingly, this guide should not be used as a substitute for referring to the standards and interpretations themselves. PRIMARY STATEMENTS PRIMARY An entity should also have regard to applicable legal and regulatory requirements. This guide does not consider the requirements of any particular jurisdiction. For example, IFRS does not require the presentation of separate financial statements for the parent entity, and this guide includes only consolidated financial statements. Other guidance In preparing this guide, we had regard to the recommendations made by the Enhanced Disclosure Task Force (EDTF) in its report Enhancing the Risk Disclosures of Banks, issued on 29 October 2012, and its revision issued on 7 December 2015, Impact of Expected Credit Loss Approaches on Bank Risk Disclosures. The purpose of this report is to help banks improve their communication with their stakeholders in the area of risk disclosures, with the ultimate aim of improving investor confidence. The recommendations’ scope is wider than the financial statements, because they apply to all financial NOTES reports, including public disclosures required by regulators and other communications with stakeholders. In some cases, recommendations in the report may impact the manner of presentation of information that is already required to be disclosed under IFRS. In other cases, it recommends disclosure of new information. Many regulators continue to focus on disclosures in financial statements. For example, the European Securities and Markets Authority (ESMA) has published its public statement on European common enforcement priorities for 2015. This statement identifies specific considerations relevant for the banking sector in 2015. In addition, in preparing this guide we also had regard to the recommendations made by the Basel Committee on Banking Supervision in its Guidance on credit risk and accounting for expected credit losses issued in December 2015. APPENDICES © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. About this guide | 3 Need for judgement This guide is part of our suite of publications – Guides to financial statements – and specifically focuses on compliance with IFRS. Although it is not exhaustive, this guide illustrates the disclosures required by IFRS for one hypothetical bank or a similar financial institution; for ease of illustration, the disclosures here are generally presented without regard to materiality. INTRODUCTION This guide should not be used as a boiler plate template. The preparation of an entity’s own financial statements requires judgement, in terms of the choice of accounting policies, how the disclosures should be tailored to reflect the entity’s specific circumstances, and the materiality of disclosures in the context of the organisation. Applying the concept of materiality to disclosures An entity needs to consider the concept of materiality when preparing the notes to its financial statements; it is not appropriate simply to apply the disclosure requirements
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