Bank Accounting

Description

A bank’s accounts do not look like those of a commercial company. They are organised by type of transaction and by counterparty, the income statement is built around net banking income, and a significant share of commitments sits off balance sheet. These features stem from a body of rules specific to the sector.

This three-day course presents that regulatory framework, then the chart of accounts of a credit institution. It then follows a transaction from the journal entry through to the published financial statements and the regulatory returns sent to the supervisor.

The reference texts

In France, the individual accounts of banking sector entities are governed by ANC Regulation No. 2014-07 of 26 November 2014. It applies in particular to credit institutions, financing companies, investment firms, and payment and electronic money institutions. For transactions it does not cover, the general chart of accounts (ANC Regulation No. 2014-03) applies. The French accounting standards authority (ANC) publishes a consolidated collection of the standards applicable to the banking sector each year.

The structure of the chart of accounts

Class	Content
1	Treasury and interbank transactions
2	Customer transactions
3	Securities and other transactions
4	Fixed assets
5	Long-term capital
6	Expenses
7	Income
9	Off-balance sheet commitments

Learning objectives

By the end of the course, participants will be able to:

• Identify the authorities and texts that govern accounting for banking institutions
• Distinguish the frameworks applicable to individual and consolidated accounts
• Read the structure of the bank chart of accounts and classify everyday transactions
• Record the main transactions: treasury, loans, deposits, securities and off-balance sheet commitments
• Apply the rules for classifying doubtful loans and recognising impairment
• Read and build a bank’s financial statements, from net banking income to net profit

Teaching methods and resources

Short presentations based on the official texts, account classification and journal entry exercises, and a full case on a fictitious institution whose accounts participants build from a trial balance. Materials provided: summary of reference texts, annotated chart of accounts, standard entry sheets, templates of published statements and a glossary.

Course programme

1. The regulatory framework for bank accounting

• Identify the players: French accounting standards authority (ANC), ACPR, ECB, statutory auditors
• Place the texts: Commercial Code, Monetary and Financial Code, ANC Regulation No. 2014-07
• Distinguish French GAAP for individual accounts and IFRS for consolidated accounts
• List the entities concerned and their publication obligations

Practical work: identifying the framework and texts that apply to three entities within the same banking group.

2. The bank chart of accounts

• Understand the logic of the chart: classification by type of transaction and counterparty
• Go through the balance sheet, income statement and off-balance sheet classes
• Link accounts to the line items of published statements
• Spot the differences with the general chart of accounts

Practical work: classifying some twenty everyday transactions in the chart of accounts.

3. Recording everyday transactions

• Record treasury and interbank transactions
• Account for loans, deposits and the spreading of fees
• Classify and measure securities by accounting category
• Record off-balance sheet financing and guarantee commitments

Practical work: journal entries across the life of a loan: drawdown, instalments, spread arrangement fees and accrued interest.

4. Credit risk in the accounts

• Apply the criteria for doubtful and irrecoverable doubtful loans
• Calculate and record impairment and provisions
• Distinguish the French GAAP treatment from the IFRS 9 expected credit loss model
• Measure the effect on the cost of risk

Practical work: reclassifying a loan portfolio as doubtful and recording the impairment.

5. Producing financial and regulatory statements

• Build the balance sheet, off-balance sheet statement and income statement in the banking format
• Read the intermediate balances: net banking income, gross operating income, cost of risk
• Organise the closing process and internal accounting control
• Place regulatory reporting, including FINREP, and the move to consolidated accounts

Practical work: building the income statement of a fictitious institution, from net banking income to net profit, from its trial balance.

Description

Securities, loans, deposits and derivatives make up most of a bank’s balance sheet. How they are accounted for drives profit, capital and their volatility. Yet the same instrument can be classified, measured and impaired differently depending on whether it sits in the individual accounts, prepared under French GAAP, or in the consolidated accounts, prepared under IFRS.

This three-day course covers both frameworks side by side. For each family of instruments, it presents the French rule, the IFRS rule, and then the differences to restate when moving to consolidated accounts.

The two frameworks

• French GAAP: ANC Regulation No. 2014-07 sets the treatment of securities (trading, available-for-sale, held-to-maturity, portfolio activity, equity investments), loans and forward financial instruments in individual accounts.
• IFRS as adopted by the European Union: IFRS 9 for classification, measurement, impairment and hedging; IAS 32 for presentation; IFRS 13 for fair value; IFRS 7 for disclosures. They apply in particular to the consolidated accounts of listed groups.

Question	French GAAP	IFRS
Securities classification	Based on management intent: trading, available-for-sale, held-to-maturity, portfolio activity, equity investments	Based on business model and cash flow characteristics: amortised cost, fair value through OCI, fair value through profit or loss
Credit risk impairment	On doubtful loans, once the risk has materialised	Expected credit losses, in three stages, from origination
Derivatives	Treatment depends on purpose: hedging, specialised management, isolated open position	Measured at fair value through profit or loss, unless hedge accounting applies
Hedging	Symmetrical treatment with the hedged item	Documented hedge relationships and effectiveness testing; European option for macro-hedging under IAS 39

Learning objectives

By the end of the course, participants will be able to:

• Place the texts that apply to financial instruments under French GAAP and IFRS
• Classify and measure securities and loans under each framework
• Calculate impairment under French rules and under the IFRS 9 expected credit loss model
• Account for derivatives and hedge relationships
• Identify and quantify restatements between individual and consolidated accounts
• Read the published disclosures on financial instruments

Teaching methods and resources

Short presentations based on the texts, journal entry exercises run in parallel under both frameworks, spreadsheet calculations and analysis of notes to banks’ published accounts. Materials provided: French GAAP/IFRS correspondence table, IFRS 9 classification decision tree, expected credit loss workbook, standard entry sheets and a glossary.

Course programme

1. The standard-setting framework

• Identify the texts: ANC Regulation No. 2014-07, IFRS 9, IAS 32, IFRS 13, IFRS 7
• Link individual and consolidated accounts
• Measure fair value: hierarchy levels and observable inputs
• Follow current developments, including the IASB project on risk mitigation accounting

Practical work: mapping the frameworks that apply to the individual and consolidated accounts of a banking group.

2. Classifying and measuring securities and loans

• Apply the French GAAP securities categories and their measurement rules
• Apply IFRS 9: business model, contractual cash flow test, fair value options
• Calculate amortised cost and the effective interest rate
• Handle reclassifications and disposals

Practical work: classifying and measuring a securities portfolio under both frameworks, and calculating the differences in profit.

3. Impairing credit risk

• Apply French rules: doubtful loans, irrecoverable doubtful loans, impairment
• Apply the IFRS 9 expected credit loss model: stages 1, 2 and 3
• Assess significant increase in credit risk
• Include forward-looking information and scenarios

Practical work: calculating expected credit losses on a corporate loan portfolio and comparing them with French GAAP impairment.

4. Accounting for derivatives and hedging

• Treat forward financial instruments under French GAAP according to their purpose
• Measure derivatives at fair value and handle embedded derivatives under IFRS
• Document a fair value hedge and a cash flow hedge
• Place macro-hedging and the European option relating to IAS 39

Practical work: accounting for an interest rate swap hedging a fixed-rate borrowing, under French GAAP then IFRS.

5. Moving to consolidated accounts and disclosure

• List the French GAAP to IFRS restatements on financial instruments
• Measure the effect on profit and equity
• Produce IFRS 7 disclosures: risks, fair value, impairment
• Organise accounting controls on financial instruments

Practical work: building the reconciliation from individual to consolidated accounts for a fictitious institution.