IFRS Illustrative fnancial statements: Banks December 2012 kpmg.com/ifrs 1 Contents What’s new 2 About this publication 3 Independent auditors’ report on consolidated fnancial statements 5 Consolidated fnancial statements 7 Consolidated statement of fnancial position 9 Consolidated statement of comprehensive income – (single-statement approach) 13 Consolidated statement of changes in equity 17 Consolidated statement of cash fows 21 Notes to the consolidated fnancial statements 25 Appendices I Consolidated income statement and consolidated statement of comprehensive income – two-statement approach 245 II Example disclosures for entities that early adopt IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities 249 I Example disclosures for entities that early adopt IFRS 13 Fair Value Measurement 261 IV Example disclosures for entities that early adopt Disclosures – Offsetting Financial Assets and Financial Liabilities (amendments to IFRS 7) 285 Technical guide 294 Other ways KPMG member frms’ professionals can help 295 © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 2 What’s new? Major changes from the January 2010 edition of Illustrative fnancial statements: Banks are highlighted by a double line border running down the left margin of the text within this document. The major changes include the following: ●● Adoption of amendments to IFRS 7 Financial Instruments: Disclosures as part of Improvements to IFRSs issued in May 2010; ●● Adoption of Disclosures – Transfers of Financial Assets (amendments to IFRS 7); ●● Disclosures related to Eurozone exposures; and ●● Three new appendices illustrating example disclosures for the early adoption of the following standards: – IFRS 10 C onsolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities (May 2011), including the related amendments arising from Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (amendments to IFRS 10, 11 and 12) (June 2012); – IFRS 13 Fair Value Measurement (2011); and – Disclosures – Offsetting Financial Assets and Financial Liabilities (amendments to IFRS 7) (2011). The IASB has issued several other amendments to its standards during the past year. We have introduced a new Appendix IV in our publication Illustrative fnancial statements (October 2012), to help identify requirements that are effective for the frst time for annual periods beginning on 1 January 2012, and those that are available for early adoption during the period. Cross-references to the related example disclosures are provided when appropriate. Some of the new disclosure requirements that are of a general nature are illustrated in our publication Illustrative fnancial statements issued in October 2012. In October 2012, the Enhanced Disclosure Task Force (EDTF) established by the Financial Stability Board issued a report, Enhancing the Risk Disclosures of Banks. The fundamental principles contained in the report apply to all banks. However, the recommendations for enhanced disclosures have been developed specifcally for large international banks that are active participants in equity and debt markets. Adoption of the recommendations in the report is voluntary. The recommendations do not specifcally refer to fnancial statements, but rather to all types of risk disclosures made by banks, including those made for regulatory purposes and other communications with stakeholders. In preparing these illustrative fnancial statements, we considered the recommendations made in the EDTF report; however, we have not provided a comprehensive illustration of how the EDTF recommendations can be implemented, as it is likely that many of them will be published outside of fnancial statements. For example, recommendations relating to capital adequacy and risk weighted assets are likely to be published as part of Pillar 3 disclosures, while many recommendations relating to credit, market and liquidity risks may be published within the annual report but outside of the audited fnancial statements. In certain cases, where we considered that EDTF recommendations enhanced the ability of users to evaluate the signifcance of fnancial instruments for the Group’s fnancial position and the nature of risks arising from those instruments, we have incorporated examples of such disclosures in these illustrative fnancial statements. However, banks may reach different conclusions as to what disclosures to include in their fnancial statements, depending on their particular facts and circumstances. © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 3 About this publication These illustrative fnancial statements have 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. Content This publication helps you prepare fnancial statements for a bank or similar fnancial institution in accordance with IFRS. It illustrates one possible format for fnancial statements, based on a fctitious banking group involved in a range of general banking activities; the bank is not a frst-time adopter of IFRS (see ‘Technical guide’). This publication refects IFRS in issue at 1 December 2012 that are required to be applied by an entity with an annual period beginning on 1 January 2012 (‘currently effective’ requirements). IFRSs that are effective for annual periods beginning after 1 January 2012 (’forthcoming’ requirements) have not been adopted early in preparing these illustrative fnancial statements. However, certain forthcoming requirements have been introduced in the explanatory notes in a highlighted box. Appendix IV in our publication Illustrative fnancial statements (October 2012) provides a list of standards or amendments that are effective for the frst time for annual periods beginning on 1 January 2012, and forthcoming requirements. In addition, example disclosures for the adoption of certain new standards and amendments are included in the appendices to these illustrative fnancial statements. When preparing fnancial statements in accordance with IFRS, an entity should have regard to applicable legal and regulatory requirements. This publication does not consider any requirements of a particular jurisdiction. For example, IFRS does not require the presentation of separate fnancial statements for the parent entity, and this publication includes only consolidated fnancial statements. However, in some jurisdictions parent entity fnancial information may also be required. This publication does not illustrate the requirements of IFRS 4 Insurance Contracts, IFRS 6 Exploration for and Evaluation of Mineral Resources, IAS 26 Accounting and Reporting by Retirement Beneft Plans or IAS 34 Interim Financial Reporting, nor the disclosure requirements of several standards that are not specifc to banking operations. IAS 34 requirements are illustrated in our publication Illustrative condensed interim fnancial report. This publication illustrates only the fnancial statements component of a fnancial report, and the independent auditors’ report on the fnancial statements. However, a fnancial report will typically include at least some additional commentary from management, either in accordance with local laws and regulations or at the election of the entity (see ‘Technical guide’). In 2008, the IASB established an ‘Expert Advisory Panel’ (the Panel) to help the IASB review best practices in the area of valuation techniques, and formulate any necessary additional guidance on valuation methods for fnancial instruments and related disclosures when markets are no longer active. This publication includes certain illustrative disclosures and explanatory notes from Part 2 of the Panel’s fnal report Measuring and disclosing the fair value of fnancial instruments in markets that are no longer active, published in October 2008; to the extent that these disclosures are not specifcally required by IFRS 7, these additional illustrative disclosures are italicised and, depending on a reporting entity’s facts and circumstances, may not be necessary to meet the requirements of IFRS as issued by the IASB. Some of these disclosures have been incorporated into IFRS 13 and are illustrated in Appendix III. On 29 October 2012, the EDTF issued a report, Enhancing the Risk Disclosures of Banks. 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 confdence. The scope of the recommendations is wider than the fnancial statements because they apply to all fnancial reports, including public disclosures required by regulators and other communications with stakeholders. The report is the product of a collaboration between users and preparers of fnancial reports. It contains 32 recommendations, which are based on seven fundamental principles. The report does not specify in which fnancial report the recommendations to enhance the risk disclosures might be incorporated. 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. In preparing these illustrative fnancial statements, we had regard to the recommendations made in the EDTF report. IFRS and its interpretation change over time. Accordingly, these illustrative fnancial statements should not be used as a substitute for referring to the standards and interpretations themselves. References The illustrative fnancial statements are contained on the odd-numbered pages of this publication. The even-numbered pages contain explanatory comments and notes on disclosure requirements of IFRS. The illustrative examples, together with the explanatory notes, are not intended to be seen as a complete and exhaustive summary of all disclosure requirements that are applicable under IFRS. In addition, an entity need not provide a specifc disclosure required by an IFRS if the information is not material. For an overview of all disclosure requirements that are applicable under IFRS, see our publication Disclosure checklist. To the left of each item disclosed, a reference to the relevant standard is provided. The illustrative fnancial statements also include references to the 9th Edition 2012/13 of our publication Insights into IFRS. © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 4 | Independent auditors’ report Explanatory note 1. The illustrative auditors’ report on the consolidated fnancial statements has been prepared based on International Standard on Auditing 700 Forming an Opinion and Reporting on Financial Statements. The format of the report does not refect any additional requirements of the legal frameworks of particular jurisdictions. © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Independent auditors’ report | 5 1 Independent auditors’ report on consolidated fnancial statements [Addressee] We have audited the accompanying consolidated fnancial statements of [name of company] (the ‘Company’), which comprise the consolidated statement of fnancial position as at 31 December 2012, the consolidated statements of comprehensive income, changes in equity and cash fows for the year then ended, and notes, comprising a summary of signifcant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated fnancial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated fnancial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated fnancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated fnancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fnancial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the consolidated fnancial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated fnancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated fnancial statements. We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated fnancial statements give a true and fair view of the consolidated fnancial position of the Company as at 31 December 2012, and of its consolidated fnancial performance and its consolidated cash fows for the year then ended in accordance with International Financial Reporting Standards. KPMG [Date of report] [Address] © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 6 This page has been left blank intentionally. © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 7 [Name of Bank] Consolidated fnancial statements 31 December 2012 © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 8 | Illustrative fnancial statements: Banks Explanatory notes 1. IAS 1.10 IAS 1 Presentation of Financial Statements uses the title ‘Statement of fnancial position’. This title is not mandatory. An entity may use other titles – e.g. ‘Balance sheet’ – as long as the meaning is clear and they are not misleading. 2. IAS 1.45 The presentation and classifcation of items in the fnancial statements is retained from one period to the next unless: ●● changes are required by a new standard or interpretation; or ●● it is apparent, following a signifcant change to an entity’s operations or a review of its fnancial statements, that another presentation or classifcation would be more appropriate. In this case, the entity also considers the criteria for selection and application of accounting policies in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 3. IAS 1.10, 39 An additional statement of fnancial position and related notes are presented as at the beginning of the earliest comparative period following a change in accounting policy, the correction of an error, or the reclassifcation of items in the fnancial statements. The current IAS 1 provides no further guidance in terms of how this requirement should be interpreted. In our view, the requirement to present a ‘third’ statement of fnancial position should be interpreted having regard to materiality based on the particular facts and circumstances. In our view, ‘related notes’ should be interpreted as requiring disclosure of those notes that are relevant to the reason for which the third statement of fnancial position is presented – i.e. not all notes are required in th every circumstance. This issue is discussed in the 9 Edition 2012/13 of our publication Insights into IFRS (2.1.35). Forthcoming requirements In Annual Improvements to IFRS – 2009-2011 Cycle, which is effective for annual periods beginning on or after 1 January 2013, the IASB amends IAS 1 to clarify, among other things, the requirements regarding the presentation of the third statement of fnancial position. ●● The third statement of fnancial position is required only if a retrospective change in accounting policy, a retrospective correction of an error or a reclassifcation has a material effect on the information in the statement of fnancial position. ●● Except for the disclosures required under IAS 8, notes related to the third statement of fnancial position are no longer required. ●● The third statement of fnancial position to be presented is that at the beginning of the preceding period, rather than at the beginning of the earliest comparative period presented. This is also the case even if an entity provides additional comparative information beyond the minimum comparative information requirements. 4. IAS 1.60–61, 63 A bank or similar fnancial institution usually presents a statement of fnancial position showing assets and liabilities in their broad order of liquidity because such presentation provides reliable and more relevant information than separate current and non-current classifcations. For each asset and liability line item that combines amounts expected to be recovered or settled within: ●● no more than 12 months after the reporting date; and ●● more than 12 months after the end of the reporting period, an entity discloses in the notes the amount expected to be recovered or settled after more than 12 months. 5. IFRS 7.8 The carrying amounts of each of the categories of fnancial assets and fnancial liabilities in paragraph 8 of IFRS 7 are required to be disclosed in either the statement of fnancial position or the notes. In these illustrative fnancial statements this information is presented in the notes. © 2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.