The extent of applying the 7th International Financial Reporting Standard in banks

Posted on Oct 11, 2021 at 10:10 AM

Banks are considered an important economic sector with a great influence in every country, in which most individuals and institutions, either investors, borrowers or traders get the benefit. Banks play a key role to provide adequate confidence in the monetary system concerning as they are connected to regulatory and government authority.

The users of banks' financial statements need convenient, comparable, and reliable information to help them evaluate the bank's performance and its financial position, and manage their different economic decisions. They are concerned with liquidity, solvency, and risk related to assets and liabilities.

What is the importance of accounting disclosure?

Accounting disclosure is very important to deliver the bank's business results and financial position to different parties. Disclosure is addressed in financial reports that include information about the bank's resources and obligations before a third party takes over.

This information helps to demonstrate the strengths and weaknesses of the Bank's financial position, evaluate liquidity, performance, and degree of risk.

The International Accounting Standards Committee (IASC) has issued the 7th International Financial Reporting Standard in 2005: Disclosures, which replaced the 30th International Accounting Standard: Disclosure in financial statements of banks to make disclosure sufficient and meet the needs of users.

This standard aims to protect users of the financial statements of banks by presenting the vocabulary of financial statements, clarifying statements, and required information to be disclosed. These statements help to facilitate decision-making when evaluating the bank performance and make investment and credit decisions and others so that these lists are not misleading.

The importance of applying the 7th standard: 

- Banks are considered an important economic sector with a great influence in every country, Banks play a key role to provide adequate confidence in the monetary system as they are connected to monetary power.

- The large number of bank clients, investors, depositors, and other stakeholders and those who rely on the financial statements of banks to make investment and credit decisions. 

- Expand the development plans and promote investment in both small and large projects, and the need for such projects to banking facilities such as documentary credits, bank guarantees. This supports the role of banks at this important stage.

- Weak control over the work of banks concerning accounting procedures leads to preparing different accounts of efficiency and quality depending on the accountant's experience and his professional background and how he is informed and adhered to professional requirements.

This reduces adopting financial statements of banks to make comparisons, thus losing comparability of accounting information, which is characteristic of useful accounting information.

Parties benefiting from the application of this standard:

- Regulatory authority: represented by the monetary authority, where the central bank monitors banks to ensure the stability of their financial situation to know the situation of distressed banks to correct the situation and avoid economic crises. 

- Investors and creditors: where investors evaluate the bank's position to ensure the integrity of their investments and control their decisions while selling and purchasing bank shares and bonds in the financial market.

The depositors and lenders are interested to know the bank's financial position to ensure the safety of their funds and the continued provision of banking facilities on the one hand, and the bank's ability to pay its obligations on the other hand.

- Academics, researchers, and students at universities and institutes, as well as university students who need bank financial statements for study, analysis, and research.

- Bank management: it is interested in evaluating the business results and how to achieve the bank objectives. It concerns knowing the strength and weakness indicators so that it can take appropriate corrective action to address the weaknesses.

To raise the level of disclosure in the financial reports of banks, and reconcile viewpoints in assessing and understanding the financial reports, we must emphasize the following:

1-Develop regulatory policies to provide flexibility and efficiency and follow the supervision of banks by the central bank to apply international accounting standards, especially the seventh standard, and follow-up amendments to existing standards and new international standards due to the importance of providing clear and sound financial information and promoting the principles of transparency and disclosure in financial reports issued by banks. 

2- Enhancing the efficiency of banks employees to achieve greater uniformity in practice in financial reports by providing constant training programmes of international financial reporting standards in London, and financial reporting training courses in Dubai especially the seventh international standard, international accounting standard number (1) which is presentation financial statements, standard number (32) and standard number (39)

3- Promoting research and studies that aim to identify accounting problems while the practical application in banks in the field of preparing and auditing financial reporting.

These studies raise the quality of disclosure and the degree of similarity in these reports to ensure honesty and fairness of results of banks' business and the integrity of their financial centres, and control economic decisions.