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IFRS Implementation in Banking Sector: Austria Case Study

Dive into the specifics of IFRS implementation in the Austrian banking sector from an auditor's perspective. This case study covers auditing issues, leases, financial instruments, hedge accounting, impairment, consolidation, IT environment, and internal reporting/controlling.

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IFRS Implementation in Banking Sector: Austria Case Study

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  1. Implementation of IFRS in the banking sector:Austria case study – An Auditor‘s PerspectiveMarch 14, 2006 Gerald Kogler

  2. Agenda • Auditing Issues • Leases • Financial Instruments • Hedge Accounting • Impairment • Consolidation – Special Purpose Entities • IT Environment • Internal Reporting/Controlling • Highlight Summary

  3. Leases • Classification of a lease • Review of procedures and analyses performed by the company in order to identify all contracts containing a lease • Verify classification • Adequate evaluation of recorded balance sheet items • Initial direct costs to be integrated into the calculation of the implicit interest rate • Treatment of contracts involving non-constant lease payments • Sale & lease back arrangements

  4. Financial Instruments -Overview

  5. Financial Instruments • Classification of financial assets • Assets recognized at fair value through P&L (trading and fair value option) • Available-for-sale (AFS) • Held-to-maturity (HTM) • Measurement • Fair value considerations • Application of effective interest rate (including acquisition costs, discounts and premiums) • HTM investments – compliance with “Tainting Rules”

  6. Financial Instruments - Derivatives • Identification of derivatives • All derivatives recorded on balance sheet • Procedures used for measuring all derivatives at fair value

  7. Financial Instruments - Embedded Derivatives • Identification of embedded derivatives • Host contracts containing embedded derivatives • Economic risks closely related to host contract • Allocation of the fair value of the hybrid instrument between the host contract and the embedded derivative

  8. Hedge Accounting • Requirements of Hedge Accounting • Hedged item • Hedging instrument • Hedge effectiveness • Documentation • Cash flow hedge • Fair value hedge

  9. Hedge Accounting • Formal designation & documentation at inception • Highly effective • Effectiveness of the hedge can be reliably measured • Hedges are being assessed on an ongoing basis

  10. Hedge Accounting • Methods applied for effectiveness testing • Prospective assessment of effectiveness • Retrospective assessment of effectiveness • Termination of hedging relationships

  11. Impairment • Statutory & tax driven influences vs. requirements under IFRS • Cash flow oriented • Objective evidence • General provisions

  12. Financial Instruments – Disclosures • Requirement of IAS 32 • Requirements of IAS 30 • Implementation of IFRS 7 (1 January 2007, supersedes IAS 30)

  13. Financial Instruments – Disclosures • Extensive requirements • Terms & conditions • Risk management policies • Interest rate risk • Credit risk • Hedging • Fair value

  14. Consolidation – Special Purpose Entities • SIC-12 • Majority of risks & rewards • Local legislation vs. IFRS principles • Structured transactions

  15. IT Environment • IT system changes • Delta accounting vs parallel accounting • Implementation of the new Basel Accord will create additional pressure on the IT Resources and may decelerate IT transition process to IFRS

  16. Internal Reporting/Controlling • Segment Reporting • Management approach • Corporate Management • Risk Management

  17. Highlight Summary • IT Restrictions often cause issues on full adoption of IFRS • Differences between local GAAP and IFRS may result in accounting arbitrage • Consistent results under local GAAP vs. volatility under IFRS

  18. Thank you

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