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FINMA circular 15/1 Accounting - Banks Recognition, recording and valuation checklist

Status: July 2015

Introduction

FINMA circular 15/1 Accounting banks – Recognition, recording and valuation checklist – Status: July 2015 PwC2

Introduction

FINMA circular 15/1 ‘Accounting – banks’ – along with the accounting requirements of the Banking Act and the Banking Ordinance – is the basis for the Swiss financial reporting requirements for banks, securities dealers and financial groups and conglomerates. The financial reporting requirements applicable to banks and securities dealers must be appropriately set out in the internal requirements, such as in the accounting manuals, accounting policies or group guidelines, so that the business transactions can be presented according to the financial reporting rules and disclosed in the financial statements. This checklist allows users to review the correct and complete regulation of the accounting, recog-nition, booking and valuation requirements in the financial statements prepared in accordance with FINMA circ. 15/1. It covers all of the corresponding requirements. This checklist does not cover other requirements (e.g. disclosure rules, approach description or ter-minology definitions). The indications in italics serve to clarify certain points. References to the relevant regulatory basis are pro-vided for all of the provisions. The new FINMA circ. 15/1 entered into force as of 1 January 2015 and replaces the previous FINMA circ. 08/2 ‘Accounting – banks’.

Application The checklist is based on the structure of the finan-cial statements. It is recommended to use this checklist in order to review the internal require-ments in the accounting manuals, accounting poli-cies or group guidelines. Any considerations concerning the materiality must be documented in a verifiable manner. Where FINMA circ. 15/1 explicitly specifies the materiality level, this is referenced in the checklist.

Type of financial statements The first four columns (from left to right) in the checklist (‘Type of FS’) specify the applicability of a requirement to the corresponding type of finan-cial statements. FINMA circ. 15/1 differentiates the following types of financial statement. The abbre-viations used in the checklist are illustrated below:

Statu-tory sin-gle entity financial state-ments

Reliable assessment statutory single-en-tity financial state-ments RSS

True and fair view statutory single-en-tity financial state-ments TSS

True and fair view single-entity fi-nancial state-ments

True and fair view supplementary sin-gle-entity financial statements TSupS

Consolidated financial statements (true and fair view) CoT

Introduction


Abbreviations The ‘Basis’ column provides the references to the

corresponding items in FINMA circ. 15/1 or to fur-

ther sources. The reference to the respective regula-

tion is written as follows:

CO 123c.1 Article 123c para. 1 Code of Obli-gations (CO)

BO 12.3 Article 12 para. 3 Banking Ordi-nance (BO)

ARB 123 Margin number 123 of FINMA circ. ‘Accounting – banks’ (Ac-counting rules for banks, securi-ties dealers, financial groups and conglomerates; ARB)

FAQ x Question no x of FINMA FAQ: Frequently asked questions on circular 15/1 ‘Accounting – banks’ (last amendments: 22 July 2015)

The following indications can be entered in the ‘Compliant’ column for each of the items in the checklist:

Y Yes - The internal regulation complies with the legal or regulatory require-ments.

NA Not applicable - The internal regulation does not apply to the financial state-ments in question.

NM Not material - The internal regulation is not material and has not been included.

Completeness and accuracy of this

checklist We have made every effort to ensure this checklist covers all of the disclosure requirements correctly and completely. Nevertheless, we cannot exclude the possibility that it contains errors. FINMA circ. 15/1 and the other legal requirements are the sole and exclusive authority. We recommend, therefore, that you consult the legal and regulatory requirements and seek professional advice before making any critical decisions. Depending on the circumstances of each case, additional disclosures may be necessary in order to comply with the legal, exchange-related and regulatory requirements. PwC accepts no liability for any damages arising from the use of this checklist. We would be happy to hear from you about how we can improve the fu-ture versions of this checklist.


Contents

Introduction 2

1 Basis and principles of orderly financial reporting 7

1.1. Assumption that the company will continue as a going concern 7

1.2. Accrual 7

1.3. Proper recognition of business transactions 8

1.4. Clarity and understandability 8

1.5. Completeness 8

1.6. Reliability 8

1.7. Materiality of information 8

1.8. Prudence 9

1.9. Consistency in presentation and valuation 9

1.10. Changes to the accounting and valuation principles, estimates and errors relating to previous periods 10

1.11. Inadmissibility of offsetting assets & liabilities and income & expense items 11

1.12. Substance over form 12

1.13. Foreign currency translation 12

1.14. Hidden reserves 13

2 Balance sheet items – Assets 16

2.1. General provisions relating to assets 16

2.2. Liquid assets 17

2.3. Amounts due from banks 17

2.4. Amounts due from securities financing transactions 19

2.5. Amounts due from customers 20

2.6. Mortgage loans 21

2.7. Trading portfolio assets 21

2.8. Positive replacement values of derivative financial instruments 23

2.9. Other financial instruments at fair value 26

2.10. Financial investments 28

2.11. Accrued income and prepaid expenses 30

2.12. Participations 31

2.13. Tangible fixed assets 33

2.14. Intangible assets 36

2.15. Other assets 39

3 Balance sheet items – Liabilities 41

3.1. General provisions relating to liabilities 41

3.2. Amounts due to banks 42

3.3. Liabilities from securities financing transactions 42


3.4. Amounts due in respect of customer deposits 43

3.5. Trading portfolio liabilities 43

3.6. Negative replacement values of derivative financial instruments 45

3.7. Liabilities from other financial instruments at fair value 47

3.8. Cash bonds 48

3.9. Bond issues and central mortgage institution loans 48

3.10. Accrued expenses and deferred income 48

3.11. Other liabilities 49

3.12. Provisions 50

3.13. Reserves for general banking risks 54

3.14. Bank’s capital 54

3.15. Statutory capital reserve (of which tax-exempt capital contribution reserve) 54

3.16. Statutory retained earnings reserve 55

3.17. Voluntary retained earnings reserves 56

3.18. Own shares (negative item) 56

3.19. Profit carried forward/loss carried forward 57

4 Off-balance sheet transactions 58

4.1. Contingent liabilities 58

4.2. Irrevocable commitments 58

4.3. Obligations to pay up shares and make further contributions 59

4.4. Credit commitments 59

5 Positions of the income statement 60

5.1. Basic principles relating to the income statement 60

5.2. Interest and discount income 60

5.3. Interest and dividend income from trading portfolios 61

5.4. Interest and dividend income from financial investments 61

5.5. Interest expense 61

5.6. Changes in value adjustments for default risks and losses from interest operations 62

5.7. Commission income from securities trading and investment activities 64

5.8. Commission income from lending activities 65

5.9. Commission income from other services 65

5.10. Commission expense 66

5.11. Result from trading activities and the fair value option 66

5.12. Result from the disposal of financial investments 67

5.13. Income from participations 67

5.14. Result from real estate 68

5.15. Other ordinary income 68

5.16. Other ordinary expenses 69

5.17. Personnel expenses 70

5.18. General and administrative expenses 71

5.19. Value adjustments on participations and depreciation and amortisation of tangible fixed assets and intangible assets 72


5.20. Changes to provisions and other value adjustments, and losses 73

5.21. Extraordinary income 75

5.22. Extraordinary expenses 76

5.23. Changes in reserves for general banking risks 76

5.24. Taxes 77

6 Additional topics 78

6.1. Appropriation of profit 78

6.2. Structured products 78

6.3. Valuation at fair value 79

6.4. Value adjustments for default risks 80

6.5. Hedge accounting 83

6.6. Impairment 85

6.7. Pension benefit obligations 87

6.8. Taxes 90

6.9. Lease transactions 91

6.10. Transactions with holders of participations 92

6.11. Equity transaction costs 94

6.12. Employee participation schemes 94

7 Assurance Financial Services 96

7.1. Basic principles 96

7.2. Consolidation method 97

7.3. Goodwill/negative goodwill (badwill) 98

7.4. Foreign currencies 98

Contacts 100

Offices 101

Basis and principles of orderly financial reporting


1 Basis and principles of orderly finan-cial reporting

Type of FS

Basis Provision

Compliant References Remarks

RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

x x x x CO 957a.5 Accounting is carried out in one of the official Swiss lan-guages or in English. It may be carried out in writing, elec-tronically or in a comparable manner.

1.1. Assumption that the company will continue as a going concern x x x x BO 26.1 The financial statements are prepared based on the going

concern assumption (CO 958a) and a chronological and material distinction (CO 958b.1).

x x x x CO 958a.1 ARB 13

Financial statements are to be prepared on the assumption that the bank or financial group will continue as a going concern for the foreseeable future (CO 958a.1). If this is the case, valuations are made on a going-concern basis.


If the intention is to cease activities or parts thereof in the twelve months following the balance sheet date, or if this appears unavoidable, the financial statements for the parts of the company affected are to be based on liquidation val-ues (realisable values).

Provisions must be created for the expenditures associated with ceasing activities (CO 958a.2).

Liquidation ordered by the authorities is also deemed to be a circumstance requiring valuation on the basis of liquida-tion values.

Even if it is no longer assumed that the company will con-tinue as a going concern, complete annual financial state-ments must be prepared.


Deviations from the going-concern assumption are to be disclosed in the notes to the financial statements and the impact on the economic position must be explained (ARB 186).

1.2. Accrual x x x x ARB 15 The financial statements are to be prepared on the basis of

the periodic accrual principle. In accordance with this principle, the effects of transactions and other events are recognised at their occurrence and not when cash or cash equivalents are received or paid.

x x x x ARB 16 Expenses and income that occur in a given period are to be accrued and recognised in that period. In particular, provi-sions and value adjustments to cover risks that are appar-ent at the time of preparation of the interim and annual fi-nancial statements and that originate during the financial accounting period just ended are to be charged in full to the income statement of the financial accounting period just ended.



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

1.3. Proper recognition of business transactions x x x x ARB 17 All transactions concluded as of the balance sheet date are

to be recorded on a daily basis and valued in accordance with recognised principles.

The result from all such transactions is to be recorded in the income statement.

Spot transactions concluded but not yet settled at the bal-ance sheet date are to be recognised applying the trade date accounting principle or the settlement date account-ing principle.

It is permissible to apply trade date accounting or settle-ment date accounting separately by product category (e.g. securities, foreign exchange, etc.).

The method selected must be applied consistently.

x x x x ARB A7 Trade date accounting: Assets acquired in a spot transac-tion are recognised in the corresponding asset item as of the trade date. The obligation to effect payment is also rec-ognised in the balance sheet. Sold assets are derecognised from the corresponding asset item as of the trade date, with the receivable in respect of the payment of the sales price also being recognised in the balance sheet.

x x x x ARB A7 Settlement date accounting: Between the trade date and settlement date, the replacement values of assets pur-chased and sold are recognised in the balance sheet in the items ‘Positive replacement values of derivative financial instruments’ or ‘Negative replacement values of derivative financial instruments’. Recognition in or de-recognition from the relevant asset item takes place on the settlement date. The corresponding amount due or receivable is also recognised in the balance sheet.

1.4. Clarity and understandability x x x x ARB 18 The unequivocal and true presentation of the economic

position is to be ensured by way of a clear structure and la-belling of items.

1.5. Completeness x x x x ARB 19 The principle of completeness requires, in particular, the

full recognition of all assets, liabilities, expenses and in-come.

1.6. Reliability x x x x ARB 20 The information set out in the financial statements may

not contain any material errors and may not present a dis-torted picture. The principle of reliability also includes principles relating to the correctness/truthfulness of the fi-nancial statements and absence of arbitrariness.

1.7. Materiality of information x x x x ARB 21 Information must be material to the addressee’s decision-

making process. The term ‘material’ covers all facts that impact the valuation and presentation of the financial statements as a whole or of individual items of the finan-cial statements where the addressee’s assessment of the fi-nancial statements would change if such facts had been considered.



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

x x x x ARB 22 The materiality of an item of information is dictated by its nature and/or relative amount. In some cases, the nature of the information alone is sufficient to render it material. For example, information on related parties may be mate-rial owing to the type/nature of the relationship to the bank even if the volume of transactions between the re-lated parties is small. Such information may not be omit-ted. If an accumulation of facts that are themselves imma-terial is sufficient to exert a material influence on the fi-nancial statements, this must be taken into ac-count.

1.8. Prudence x x x x ARB 23 The principle of prudence requires that the presentation of

the economic position must not be unduly optimistic. For example, value adjustments may not be too small, the use-ful life of tangible fixed assets may not be too long, and provisions may not be too low.

x x x x ARB 24 A prudent valuation is applied where there is uncertainty regarding valuation and risk assessment. In such cases, the more prudent of two (or more) objectively substantiated values or methods must in principle be applied. The values or methods may not be based on un-founded assumptions or merely subjective criteria.

x x x x ARB 25 Where a fair value can be determined in accordance with ARB 404 et seqq., the principle of the lower of cost or mar-ket value, acquisition cost principle, realisation principle, and the principle of the unequal treatment of losses and income derived from the principle of prudence are not to be applied in the context of banks’ and financial groups’ trading portfolios. This also applies to financial instru-ments for which the fair value option is chosen (see ARB 372 ff.).

1.9. Consistency in presentation and valuation x x x x ARB 26 The principle of consistency ensures that successive finan-

cial statements of a bank or financial group are prepared so as to enable comparison between accounting periods. Formal consistency requires that the structure and form of presentation remain in principle un-changed. From a ma-terial perspective, the principle requires the consistent ap-plication of the chosen accounting and valuation princi-ples.

x x x x ARB 27 Objectively substantiated changes in presentation or valu-ation that are intended to effect an improvement and are maintained in subsequent years are not deemed to consti-tute a breach of the principle of consistency, provided they are disclosed in the notes to the financial statements. The consequences of the changes are to be disclosed and ex-plained in the notes. If the figures of the previous year have been restated, this is also to be disclosed and ex-plained.



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

1.10. Changes to the accounting and valuation principles, estimates and er-rors relating to previous periods

x x x x ARB 28 Valuations often require estimates based on information available at the time of the estimate. Subsequent develop-ments and additional findings may lead to a change in the estimate and do not constitute errors in previous financial statements. As an example, new findings may result in a reduction or extension of the depreciation period for tangi-ble fixed assets. Changes in estimates impact the current (and possibly future) business year(s) and are to be dis-closed in the notes. Their consequences must be disclosed and explained. The figures for previous years are not re-stated.

x x x x ARB 29 If errors relating to previous periods are identified during a current period, these are to be corrected and recognised through ordinary items in the income statement in the current period.

A correction via the items ‘Extraordinary expenses’ or ‘Ex-traordinary income’ is permitted in the case of non-operat-ing business transactions.

If the amount of the correction is material, the reason for the error is to be explained in the notes to the financial statements and a quantitative indication of the impact is to be given.

x x ARB 30 In the case of changes to the accounting and valuation principles, a restatement of the previous year’s figures is in principle not permitted. However, simple reclassifications not relating to the equity capital and result of the period items are permitted.

x ARB 31 The notes to reliable assessment of statutory single-entity financial statements must in particular indicate the impact of changes to the accounting and valuation principles on the hidden reserves (ARB 186).

x x ARB 32 In the case of changes to the accounting and valuation principles, a restatement of the previous year’s figures and an explanation in the notes are in principle required.

The financial statements including the previous year’s fig-ures are to be presented as if the newly applied accounting and valuation principles had always been in effect.

In so doing, the newly applied accounting and valuation principles are to be applied to events and transactions as from the date of origin of these items.

The corrective amounts for previous periods not included in the current financial statements are to be offset in eq-uity in the earliest period presented.

Re-statement of the previous year’s figures is not neces-sary where prospective application is permitted.

If restatement is not possible with a reasonable amount of effort, it may be waived. However, the reasons must be disclosed.



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

1.11. Inadmissibility of offsetting assets & liabilities and income & expense items

x x x x ARB 33 Offsetting and netting of assets & liabilities and income & expenses is in principle prohibited. Exceptions to the pro-hibition on offsetting assets and liabilities are permitted where receivables and payables arise from transactions of the same type with the same counterparty, with the same maturity or earlier maturity of the receivable, and in the same currency that cannot lead to a counterparty risk, ei-ther on the balance sheet reporting date or up to the ma-turity of the offset transactions.

x x x x ARB 34 The following exceptions to the prohibition on offsetting assets and liabilities are mandatory for:

ARB 35 - The offsetting of holdings of the bank/financial group’s own debt securities and similar instruments against the corresponding liability items;

ARB 36 - The deduction of value adjustments from the corre-sponding asset item.

x x x x ARB 37 The following exceptions to the prohibition on offsetting assets and liabilities are also permitted:

ARB 38 - Offsetting of positive and negative changes in book value with no income effect in the cur-rent period in the compensation account (ARB 439);

ARB 39 - Offsetting of deferred tax liabilities and assets in respect of the same tax authority, provided they relate to the same tax subject;

ARB 40 - Netting of positive and negative replacement values of derivative financial instruments including the associ-ated cash holdings deposited as collateral (e.g. margin accounts) in the following cases, provided a bilateral agreement to this effect has been concluded with the counterparty concerned and that agreement can be shown to be recognised by and enforceable under the legal systems set out below:

ARB 41 • For all transactions covered by a netting agreement under which, in the event of default by the counter-party owing to insolvency, bankruptcy, liquidation or similar circumstances, the bank only has the right to receive or the obligation to pay the difference be-tween the unrealised gains and losses on the transac-tions covered by the agreement (close-out netting);

ARB 42 • For all offsetting receivables and obligations matur-ing on the same day and in the same currency as set out in a debt substitution agreement between the bank and the counterparty in such a way as to give rise to a single net amount, thus creating a new, le-gally binding agreement that replaces previous con-tractual arrangements (netting by novation).

ARB 43 The bilateral agreement must be demonstrably recog-nised by and enforceable in the following jurisdictions:

ARB 44 • The country in which the counterparty is domiciled and, if a foreign branch of a company is involved, the jurisdiction in which the branch is domiciled;



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

ARB 45 • The jurisdiction whose law governs the individual transactions covered by the agreement; and

ARB 46 • The jurisdiction whose law governs the netting agree-ments required to effect the netting.

ARB 47 Netting is not permitted:

ARB 48 • For closed-out transactions governed by an agree-ment under which offsetting payments are expressed on a net basis by currency on the due date and only the net balance is paid (payment netting);

ARB 49 • If the agreement contains a provision that allows the non-defaulting party to make only limited payments or no payments at all to the defaulting party, even if the latter is a net creditor (walk-away clause).

x x x x ARB 50 The following exceptions to the prohibition on offsetting income and expenses are permitted:

ARB 51 - Offsetting of default-risk-related value adjustments and losses from interest operations against corresponding recoveries and value adjustments that are no longer re-quired (ARB 132);

ARB 52 - Offsetting of newly created provisions and other value adjustments and losses against corresponding recover-ies, as well as provisions and value adjustments that are no longer required (ARB 153);

ARB 53 - Offsetting of price gains and losses from trading activi-ties and items valued using the fair value option (ARB 140, 363 ff. and 372 ff.);

ARB 54 - Offsetting of positive and negative changes in book value on financial investments valued according to the lower of cost or market value principle;

ARB 55 - Offsetting of real estate expenses against real estate in-come;

ARB 56 - Offsetting of the refinancing result for trading posi-tions;

ARB 57 - Offsetting gains/losses from hedging transactions against the gains/losses from the underlying hedged transaction.

x x x x ARB 351 If interim financial statements have been prepared and published, bookings already made in the annual financial statements may not be changed (e.g. amortization/depre-ciation). Figures in the annual financial statements must be stated on a gross basis.

1.12. Substance over form x x x x ARB 58 Transactions are to be assessed and presented in accord-

ance with their actual economic substance and not on the basis of legal criteria, if the legal construct fails to reflect or contradicts the economic reality.

1.13. Foreign currency translation x x x x CO 957a.4

CO 958d.3 ARB 73

In accordance with CO 957a.4 and 958d.3, accounts are to be kept and financial reports are to be filed in Swiss francs or a currency significant for business operations.



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

x x x x ARB 73 If a foreign currency is used, values must be translated us-ing a generally recognised method. Values must addition-ally be quoted in Swiss francs in all components of the an-nual financial statements or consolidated financial state-ments. The method used for translation must be explained in the notes.

x x x ARB 72 Transactions in single-entity financial statements that are recorded in a foreign currency are to be converted at the rate prevailing at the time of the transaction.

Assets and liabilities are to be translated at the exchange rate prevailing on the balance sheet date; historical ex-change rates may be used for participations, tangible fixed assets and intangible assets.

Transactions in foreign currencies are to be translated at the exchange rate prevailing on the date of the transaction or the average rate for the month in which the transaction took place.

In the case of integration of branches, the average rate for the current period may also be used.

The effect of foreign currency adjustments is to be rec-orded in the income statement.

x ARB 299 Financial statements that are to be consolidated which are in a foreign currency must be translated into the currency of the consolidated financial statements.

Translation is carried out at the exchange rate prevailing on the balance sheet date, with the exception of equity.

In the case of participations, tangible fixed assets and in-tangible assets, historical exchange rates may be used.

Items booked via the income statement are translated at the exchange rate prevailing on the date of the transaction or the average rate for the current period.

Translation differences are booked through equity with no effect on the income statement.

1.14. Hidden reserves 1.14.1 Creation of hidden reserves

x x ARB 259 Hidden reserves are not permitted in true and fair view single-entity financial statements.

x ARB 240 In reliable assessment statutory single-entity financial statements, the creation of hidden reserves is permitted for replacement purposes and to ensure the long-term prosperity of the bank (CO 960a.4, 960e.3.4 & 960e.4 CO). Hidden reserves may be created only within the lim-its of CO 960.2.

x CO 960.2 Valuation must be carried out prudently, but this must not prevent the reliable assessment of the economic position of the undertaking.

x CO 960a.4 BO 25.2 ARB A1

For replacement purposes and to ensure the long-term prosperity of the undertaking, additional depreciation and valuation adjustments may be made. For the same pur-poses, the cancellation of depreciation and valuation ad-justments that are no longer justified may be dispensed with.



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

x CO 960e.4 Provisions that are no longer required need not be can-celled.

x ARB 241 Hidden reserves may only be created by:

ARB 242 - A charge to the expenses items ‘Changes to provisions and other value adjustments, and losses’ or ‘Extraordi-nary expenses’ to create hidden reserves in the liability item ‘Provisions’;

ARB 243 - Conversion of provisions no longer required into hid-den reserves insofar as these have been charged to the item ‘Changes to provisions and other value adjust-ments, and losses’;

ARB 244 - Reallocation of value adjustments for default risks that are no longer required into hidden reserves in the item ‘Provisions’;

ARB 245 - A charge to the item ‘Value adjustments on participa-tions and depreciation and amortisation of tangible fixed assets and intangible assets’ to create hidden re-serves in the items ‘Participations’ or ‘Tangible fixed as-sets’;

ARB 246 - Market-related increases in value in the items ‘Partici-pations’ and ‘Tangible fixed assets’ that are not recog-nised, leading to an increased difference between the book value and the legal maximum limit.

x ARB 248 Hidden reserves may not be created by charges that are not economically necessary to expense items with the ex-ception of ‘Value adjustments on participations and depre-ciation and amortisation of tangible fixed assets and intan-gible assets’, ‘Changes to provisions and other value ad-justments, and losses’ or ‘Extraordinary expenses’.

x ARB 248 Furthermore, the creation of hidden reserves by charges to income items (withholding of profits/reductions of in-come) is also not permitted.

x x x x ARB 520 Provisions to cover future market value fluctuations con-stitute hidden reserves, since using such provisions can serve only to smooth the reported result and prevents the reporting of correctly accrued value fluctuations.

Provisions for future investments or projects also consti-tute hidden reserves.

1.14.2 Release of hidden reserves

x ARB 249 The release of hidden reserves occurs when the reserves decrease as a result of:

ARB 250 - Release with income effect of hidden reserves in the item ‘Provisions’;

ARB 251 - Revaluation with income effect of participations and tangible fixed assets up to the legal maximum limits;

ARB 252 - Realisation through the sale of participations and tangi-ble fixed assets, with the recognition of the increased values resulting from a reclassification of participations to financial investments being deemed equivalent to a realisation through sale;



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

ARB 253 - Market-related declines in value in the items ‘Participa-tions’ or ‘Tangible fixed assets’ resulting in a reduction in the difference between the book value and the legal maximum limit.

x ARB 254 The release with income effect of hidden reserves is to be carried out via the item ‘Extraordinary income’.

x ARB 257 A revaluation of real estate and participations in excess of their acquisition costs in the case of banks in the form of a company limited by shares is to be dealt with in accord-ance with the provisions of CO 670 and reported to FINMA before the financial statements are published.

Balance sheet items – Assets


2 Balance sheet items – Assets

Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

2.1. General provisions relating to assets

2.1.1 Recognition

x x x x ARB 64 Assets are defined in accordance with CO 959.2. If no reli-able estimate of the value of an asset can be made, it is considered to be a contingent asset requiring explanation in the notes (ARB 226).

x x x x CO 959.2 Items must be entered on the balance sheet as assets if due to past events they may be disposed of, a cash inflow is probable and their value can be reliably estimated. Other assets may not be entered on the balance sheet.

2.1.2 Valuation

x x x x BO 27.1 ARB 60

Assets are usually recognised at historical cost minus de-preciation or value adjustments.

x x x x BO 27.2 Assets, liabilities and off-balance-sheet transactions are usually valued individually, provided they are material and are not customarily grouped together, due to their similar-ity, for valuation purposes.

x x x x BO 27.2 Participations, tangible fixed assets and intangible assets are valued individually in all cases.

x x x x ARB 62 The fair value is used for the valuation of certain items. The fair value is determined using either the price set on a price-efficient and liquid market or a price calculated us-ing a valuation model (ARB 404 ff.). (Detailed regulations see section 6.3, Valuation at fair value, page 79)

x x x x ARB 16 Expenses and income that occur in a given period are to be accrued and recognised in that period. In particular, provi-sions and value adjustments to cover risks that are appar-ent at the time of preparation of the interim and annual fi-nancial statements and that originate during the financial accounting period just ended are to be charged in full to the income statement of the financial accounting period just ended.

x x x x ARB 23 The principle of prudence requires that the presentation of the economic position must not be unduly optimistic. For example, value adjustments may not be too small, the use-ful life of tangible fixed assets may not be too long, and provisions may not be too low.

x x x x ARB 24 A prudent valuation is applied where there is uncertainty regarding valuation and risk assessment. In such cases, the more prudent of two (or more) objectively substantiated values or methods must in principle be applied. The values or methods may not be based on unfounded assumptions or merely subjective criteria.

x ARB 63 The individual provisions set out in CO 960a.4, 960e.3.4 and 960e.4 (for reliable assessment statutory single-entity financial statements) are applicable, subject to ARB 240 ff.



Type of FS

Basis Provision


RS

S

TS

S

TS

up

S

Co

T

Y

NA

NM

x CO 960a.4 BO 25.2

For replacement purposes and to ensure the long-term prosperity of the undertaking, additional depreciation and valuation adjustments may be made. For the same pur-poses, the cancellation of depreciation and valuation ad-justments that are no longer justified may be dispensed with.

2.1.3 Recording

x x x x ARB 60 Value adjustments are deducted from the relevant asset in accordance with CO 960a.3 and may not be shown under liabilities.

2.2. Liquid assets

2.2.1 Recognition

ARB A2-1 The following explanations regarding the content of the in-dividual items cover the material components. However, the list of components to be included is not exhaustive.

x x x x ARB A2-4 - Current Swiss coins and bank notes, excluding collec-tors’ pieces;

x x x x ARB A2-5 - Foreign coins and bank notes, provided they are freely convertible to Swiss francs;

x x x x ARB A2-6 - Balances with postal organisations outside Switzerland, provided these balances are subject to an unrestricted guarantee from the country concerned and are freely transferable;

x x x x ARB A2-7 - Sight deposits with the Swiss National Bank;

x x x x ARB A2-8 - Sight deposits with a central giro institution (central clearing office) recognised by FINMA;

x x x x ARB A2-9 - Sight deposits with a foreign central bank;

x x x x ARB A2-10 - Clearing balances of foreign branches with a recognised clearing bank of the country concerned.

2.2.2 Valuation

x x x x ARB 354 Liquid assets are recognised at their nominal value.

2.3. Amounts due from banks

2.3.1 Recognition


x x x x ARB A2-12 - All amounts due from banks that are not to be disclosed under another item;

x x x x ARB A2-13 - Amounts due from central banks, clearing institutions and foreign postal organisations, provided these are not to be disclosed under item ‘Liquid assets’;

x x x x ARB A2-14 - Due but unpaid interest;

x x x x ARB A2-15 - Delivery claims arising from precious metal account de-posits with banks outside trading activities;



Type of FS

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x x x x ARB A2-16 - Commercial bills of exchange, if the drawee is a bank;

x x x x ARB A2-17 - Own bills of exchange to the order of the bank (simple collateral bills are to be omitted);

x x x x ARB A2-18 - Cheques, if the issuer is a bank.

x x x x ARB A7 For accounting purposes, banks are deemed to be:

a) in Switzerland: institutions subject to the Swiss Banking Act under the terms set out in BA 1.1, central mortgage bond institutions, and securities dealers subject to the Federal Act on Stock Exchanges and Securities Trading (SESTA 10);

b) outside Switzerland: central banks, credit and other in-stitutions that are deemed to be banks or savings banks under the laws of the respective country, securities dealers, brokers and agents de change, if they are subject to regula-tion comparable to banking supervision in Switzerland and must comply with statutory capital adequacy require-ments. Multilateral development banks are also deemed to be banks.

x x x x ARB A7 Sub-participation: The acquisition of a share in a credit transaction entered into by another bank (the lead bank). The sub-participating bank does not act as the lender vis-à-vis the borrower. It assumes the default risk for its share of the loan and is entitled to receive a proportion of the in-terest income corresponding to its share of the loan. The lead bank must deduct the sub-participations from the to-tal credit amount; the sub-participating bank must recog-nise its share of the loan in its balance sheet in accordance with the respective borrower category.

2.3.2 Valuation

x x x x ARB 359 These items are to be recognised at their nominal value less any necessary value adjustments. (Detailed regula-tions see section 6.6, Impairment, page 85)

x x x x ARB 360 Amounts due in respect of precious metal account deposits must be valued at fair value if the precious metal con-cerned is traded on a price-efficient, liquid market.

2.3.3 Recording



x x x x BO 69.1 In the first two years after the entry into force (1 January 2015) of the Ordinance, banks can disclose value adjust-ments, in accordance with BO 27.1, as negative items in the assets, either as full totals or sub-totals.



Type of FS

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2.4. Amounts due from securities financing transactions

2.4.1 Recognition


x x x x ARB A2-20 - Receivables from cash collateral delivered in connection with securities borrowing and reverse repurchase trans-actions.

x x x x ARB 355 The term securities financing transactions includes repur-chase and reverse repurchase transactions, securities lend-ing and securities borrowing.

2.4.2 Valuation

x x x x ARB 356 The cash amounts exchanged are to be recognised in the balance sheet at their nominal value.

The transfer of securities has no effect on the balance sheet where the transferring party maintains economic control of the rights associated with the securities. The securities are to be disclosed in the notes in accordance with ARB 198.

The resale of received securities is to be recorded in the balance sheet and recognised as a non-monetary obliga-tion at fair value.

2.4.3 Recording




x x x x ARB 357 As a rule, economic control of transferred securities is not considered to be lost where the transferring party contin-ues to bear the market price risk and where it is directly or indirectly entitled to the current income and other rights from the transferred securities. This may be ensured by way of margin agreements, for example, in which the ac-quiring party is economically in the position of a secured creditor. In the case of non-tradable securities, control re-mains with the transferring party.



Type of FS

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x x x x ARB 358 Banks that engage in securities lending and borrowing in their own name but for the account of clients for whom, however, they assume neither liability nor a guarantee and thus do not act as principal, are to treat the transactions according to the rules of fiduciary transactions as provided for in ARB A5-120 and report them in the notes to the an-nual financial statements in accordance with ARB 228. A performance guarantee on the part of the bank for the proper fulfilment of its services (e.g. margining) does not change the fiduciary character of the transaction.

2.5. Amounts due from customers

2.5.1 Recognition


x x x x ARB A2-22 - All amounts due from non-banks that are not to be dis-closed under another item;

x x x x ARB A2-23 - Receivables secured by mortgage in the form of current account credit facilities used, including construction credits prior to consolidation and commercial loans;

x x x x ARB A2-24 - Amounts due to the bank in its capacity as lessor in the context of finance leasing, with the exception of real es-tate finance leasing;

x x x x ARB A2-25 - Delivery claims arising from precious metal account de-posits with customers outside trading activities;

x x x x ARB A2-26 - Due but unpaid interest;

x x x x ARB A2-27 - Commercial bills of exchange, if the drawee is not a bank;

x x x x ARB A2-28 - Cheques, if the issuer is not a bank.

x x x x ARB A7 Sub-participation: The acquisition of a share in a credit transaction entered into by another bank (the lead bank). The sub-participating bank does not act as the lender vis-à-vis the borrower. It assumes the default risk for its share of the loan and is entitled to receive a proportion of the in-terest income corresponding to its share of the loan. The lead bank must deduct the sub-participations from the to-tal credit amount; the sub-participating bank must recog-nise its share of the loan in its balance sheet in accordance with the respective borrower category.

2.5.2 Valuation


x x x x ARB 360 Amounts due in respect of precious metal account deposits must be valued at fair value if the precious metal con-cerned is traded on a price-efficient, liquid market.



Type of FS

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2.5.3 Recording




2.6. Mortgage loans

2.6.1 Recognition


x x x x ARB A2-30 - Direct and indirect mortgage claims in the form of se-cured loans (mortgage certificates pledged or assigned as collateral);

x x x x ARB A2-31 - Credits for land in the form of loans and fixed advances;

x x x x ARB A2-32 - Real estate finance leasing;

x x x x ARB A2-33 - Due but unpaid interest.

2.6.2 Valuation


2.6.3 Recording




2.7. Trading portfolio assets

2.7.1 Recognition


x x x x ARB A2-35 All of the following if held and owned by the bank for trad-ing purposes:

ARB A2-36 - Debt securities, money market securities/transactions;

ARB A2-37 - Equity securities;



Type of FS

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ARB A2-38 - Precious metals and commodities, physical or held on account;

ARB A2-39 - Other trading portfolio assets.

x x x x ARB 363 Trading means entering into actively managed positions in order to profit from fluctuations in the market price with an ongoing willingness to increase, decrease, close or hedge the risk position.

It also includes the intention to generate profits from arbi-trage.

The classification in the trading portfolio is to be estab-lished and documented accordingly when the transaction is concluded.

x x x x ARB 401 Structured products that are separated out and valued ac-cordingly, the underlying instrument is to be valued and recognised in accordance with the valuation principles ap-plying to the underlying instrument. (Detailed regulations see section 6.2, Structured products, page 78)

2.7.2 Valuation

x x x x ARB 25 Where a fair value can be determined in accordance with ARB 404 ff., the principle of the lower of cost or market value, acquisition cost principle, realisation principle, and the principle of the unequal treatment of losses and in-come derived from the principle of prudence are not to be applied in the context of banks’ and financial groups’ trad-ing portfolios. This also applies to financial instruments for which the fair value option is chosen (see ARB 372 ff.).

x x x x ARB 364 Trading positions are in principle to be valued at fair value in accordance with ARB 404 ff., and recognised in the bal-ance sheet.

x x x x ARB 365 Where, as an exception, no fair value is ascertainable, val-uation and recognition are to follow the principle of the lower of cost or market value.

x x x x ARB 393 Switches between trading positions and financial invest-ments and participations are possible. They should take place using the fair value valid at the time when the deci-sion to switch is made.

x x x x ARB 401 Structured products that are separated out and valued accordingly, the underlying instrument is to be valued and recognised in accordance with the valuation principles ap-plying to the underlying instrument.

The derivative of structured products is to be valued at fair value. (Detailed regulations see section 6.2, Struc-tured products, page 78)

2.7.3 Recording

x x x x ARB 363 Results from trading activities are to be reported only in the income statement items ‘Result from trading activities and the fair value option’ and ‘Interest and dividend in-come from trading portfolios’ as appropriate, provided the option to offset the refinancing result for trading positions in accordance with ARB 56 is not exercised.



Type of FS

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x x x x ARB 393 Switches should take place using the fair value valid at the time when the decision to switch is made and the results are to be treated in the same way as results from disposals.

x x x x ARB 401 The derivative of structured products is to be recog-nised in the item ‘Positive replacement values of derivative financial instruments’ or ‘Negative replacement values of derivative financial instruments’, as appropriate.

The two may be recognised together in the item applying to the underlying instrument. (Detailed regulations see section 6.2, Structured products, page 78)

2.8. Positive replacement values of derivative financial instruments

2.8.1 Recognition

x x x x ARB 366 Derivative financial instruments (derivatives) are financial contracts whose value is derived from the price of one or more underlying assets (equity securities or other financial instruments, commodities) or reference rates (interest rates, currencies, indices, credit ratings). In general, they require no or only a small initial investment when com-pared with the direct purchase of their underlying assets.

x x x x ARB 366 - 368

Derivative financial instruments can essentially be divided into two groups:

- Fixed forward contracts: exchange-traded forward con-tracts (futures), OTC forward con-tracts (forwards), swaps and forward rate agreements (FRAs);

- Options: OTC options and exchange-traded options. The distinction between purchased and written option contracts is of significance.

x x x x ARB 401 - 402

The derivative of structured products is to be recog-nised in the item ‘Positive replacement values of derivative financial instruments’ or ‘Negative replacement values of derivative financial instruments’, as appropriate.



x x x x ARB A2-41 - Positive replacement values of all derivative financial instruments outstanding on the balance sheet date and arising from transactions for the bank’s own account and that of customers (for netting, cf. ARB 40 ff.), irre-spective of the treatment for income statement pur-poses, for example of hedging transactions.

x x x x ARB A2-42 The following principles apply to the recognition of re-placement values arising from transactions for the ac-count of customers:

The replacement values of derivative financial instru-ments arising from transactions for the account of cus-tomers are to be recognised if a risk may arise for the



Type of FS

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S

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bank during the remaining term of the contract in the event that the customer or the other counterparty (ex-change, exchange member, issuer of instrument, broker, etc.) is no longer able to honour its obligations.

The following rules follow from this principle:

x x x x ARB A2-43 • Over-the-counter contracts (OTC):

x x x x ARB A2-44 Bank acting as commission agent: the replacement values arising from commission agent transactions are in principle to be recognised on the balance sheet unless the bank discloses the identity of the counter-party to the customer (cf. also annex 7 to ARB). In this case, the bank bears only a credit risk if the con-tract constitutes a loss for the customer. Conse-quently, only such positive replacement values are to be recognised. The corresponding double entries on the balance sheet are the corresponding negative re-placement values, i.e. the profit realised by the coun-terparty with whom the bank deals in its name but for the account of a third party. However, the trans-action need not be recognised if the contract repre-sents a profit for the customer. If the bank is not in a position for technical reasons to make this distinc-tion, all replacement values arising from commission agent transactions are to be recognised.

x x x x ARB A2-45 Bank acting as principal: replacement values are recognised.

x x x x ARB A2-46 Bank acting as broker: replacement values are not recognised.

x x x x ARB A2-47 ARB A2-48

• Exchange-traded contracts Bank acting as commission agent: The replacement values are in principle not rec-ognised on the balance sheet unless as a matter of exception the accrued daily loss (variation margin) is not fully covered by the initial margin actually required. Only the uncov-ered portion is required to be disclosed. In the case of traded options, disclosure is only required if the maintenance margin actually required does not fully cover the customer’s daily loss. Here, too, only the uncovered portion needs to be recognised. Daily gains of customers are never to be recognised.

x x x x ARB A2-49 - Spot transactions with positive replacement values rec-ognised in accordance with the settlement date ac-counting principle.

2.8.2 Valuation




Type of FS

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x x x x ARB 369 All derivative financial instruments are to be valued at fair value. Derivative financial instruments are always part of trading portfolios unless they are used for hedging pur-poses outside of trading activities.

x x x x ARB 401 - 402

The derivative of structured products is to be valued at fair value. (Detailed regulations see section 6.2, Struc-tured products, page 78)

2.8.3 Recording

x x x x ARB 370 The valuation result from trading activities is to be recog-nised in the income statement in the item ‘Result from trading activities and the fair value option’.

The valuation result of hedging instruments is to be re-ported in the compensation account unless a change in book value has been recorded in the hedged item.

If a change in book value has been recorded in the hedged item, the change in book value of the hedging transaction is to be reported via the same income statement item.





ARB 40 - Netting of positive and negative replacement values of derivative financial instruments including the associ-ated cash holdings deposited as collateral (e.g. margin accounts) in the following cases, provided a bilateral agreement to this effect has been concluded with the counterparty concerned and that agreement can be shown to be recognised by and enforceable under the legal systems set out below:

ARB 41 • For all transactions covered by a netting agreement under which, in the event of default by the counter-party owing to insolvency, bankruptcy, liquidation or similar circumstances, the bank only has the right to receive or the obligation to pay the difference be-tween the unrealised gains and losses on the transac-tions covered by the agreement (close-out netting);

ARB 42 • For all offsetting receivables and obligations matur-ing on the same day and in the same currency as set out in a debt substitution agreement between the bank and the counterparty in such a way as to give rise to a single net amount, thus creating a new, le-gally binding agreement that replaces previous con-tractual arrangements (netting by novation).



Type of FS

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ARB 43 The bilateral agreement must be demonstrably recognised by and enforceable in the following jurisdictions:

ARB 44 • The country in which the counterparty is domiciled and, if a foreign branch of a company is involved, the jurisdiction in which the branch is domiciled;

ARB 45 • The jurisdiction whose law governs the individual transactions covered by the agreement; and

ARB 46 • The jurisdiction whose law governs the netting agree-ments required to effect the netting.

ARB 47 Netting is not permitted:

ARB 48 • For closed-out transactions governed by an agree-ment under which offsetting payments are expressed on a net basis by currency on the due date and only the net balance is paid (payment netting);

ARB 49 • If the agreement contains a provision that allows the non-defaulting party to make only limited payments or no payments at all to the defaulting party, even if the latter is a net creditor (walk-away clause).


2.9. Other financial instruments at fair value

2.9.1 Recognition


x x x x ARB A2-51 Financial instruments outside trading activities, for which the bank has chosen the fair value option in accordance with ARB 372 ff.

x x x x ARB 372 Financial instruments (with the exception of the item ‘Par-ticipations’, real estate intended for sale in the item ‘Finan-cial investments’, the item ‘Cash bonds’ and the item ‘Amounts due in respect of customer deposits’, excluding structured products recognised in the last item) that are not part of trading activities may be valued at fair value in accordance with ARB 404 ff. provided all of the following conditions are met:

ARB 373 - The financial instruments are valued at fair value and are subject to risk management corresponding to that for trading activities. This should be based on a docu-mented risk management and investment strategy which ensures correct recording, measuring and limita-tion of the various risks;

ARB 374 - There is an economic hedging relationship between the financial instruments on the asset side and those on the liability side that is largely neutralised in terms of in-come by the fair value valuation (avoidance of an ac-counting mismatch);



Type of FS

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ARB 375 - Any impact of a change in own creditworthiness on the fair value following first-time recognition must be neu-tralised and may not influence the income statement. Recognition of the impact of own creditworthiness in the compensation account is permitted.

x x x x ARB 376 The procedure for valuing financial instruments at fair value must be set out in an internal directive.

x x x x FAQ 2 The fair value option (FVO) is in principle not an alterna-tive to using hedge accounting.

x x x x ARB 401 Structured products valued using the fair value option are to be recognised in the item ‘Other financial instru-ments at fair value’. (Detailed regulations see section 6.2, Structured products, page 78)

2.9.2 Valuation


x x x x ARB 378 If the above conditions for valuation at fair value outside trading activities are no longer met, fair value valuation is to be ceased. Any remaining financial instruments are to be treated in accordance with the provisions of ARB 393.


x x x x ARB 401 Structured products recognised in the item ‘Other fi-nancial instruments at fair value’ are to be valued at fair value. (Detailed regulations see section 6.2, Structured products, page 78)

2.9.3 Recording


ARB 35 - The offsetting of holdings of the bank / financial group’s own debt securities and similar instruments against the corresponding liability items;





Type of FS

Basis Provision


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x x x x ARB 377 Changes in valuations and any accrued or deferred interest on financial instruments valued using the fair value option are to be recognised in the item ‘Result from trading activi-ties and the fair value option’ and disclosed in the notes in accordance with the underlying value.

x x x x ARB 393 Switches should take place at the time when the decision to switch is made and the results are to be treated in the same way as results from disposals.

2.10. Financial investments

2.10.1 Recognition

x x x x ARB 379 Financial investments comprise debt securities, equity se-curities, physical precious metal holdings and real estate and commodities that have been acquired as a result of credit activities and are intended for resale.


x x x x ARB A2-53 The following items held and owned by the bank, albeit not for trading purposes, and – in the case of equity secu-rities and real estate – not for the purpose of permanent investment:

x x x x ARB A2-54 - Securities and book-entry securities;

x x x x ARB A2-55 - Money-market instruments such as BIS bills, bankers’ acceptances, commercial papers (CPs), certificates of deposit (CDs), treasury bills and money-market book claims;

x x x x ARB A2-56 - Book-entry securities based on money-market and sim-ilar instruments;

x x x x ARB A2-57 - Debt register claims due from public-sector entities;

x x x x ARB A2-58 - Real estate, equity securities and commodities whose ownership has been assumed by virtue of a credit trans-action and are intended for resale;

x x x x ARB A2-59 Pphysical precious metals.

x x x x ARB A2-60 Financial instruments for which the bank has chosen the fair value option are recognised un-der item ‘Other finan-cial instruments at fair value’.

x x x x ARB 401 In the case of structured products that are separated out and valued accordingly, the underlying instrument is to be recognised in accordance with the valuation princi-ples applying to the underlying instrument.


2.10.2 Valuation

x x x x ARB 380 Debt securities intended to be held to maturity are recognised at acquisition cost and the premium/discount (interest component) is accrued over the term.



Type of FS

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Default-risk-related changes in book value are to be recog-nised immediately by means of a charge to the item ‘Changes in value adjustments for default risks and losses from interest operations’.

x x x x ARB A7 Accrual method (amortised cost method): Here the inter-est component is recognised in the income statement on a pro rata basis or by applying the compound interest method over the term to maturity. When accruing premi-ums and/or discounts of a fixed-interest debt instrument over its term, this is also referred to as the ‘Amortised cost method’.

x x x x ARB 382 Debt securities not intended to be held until ma-turity available for sale) are valued at the lower of cost or market value.

Changes in book value are in principle to be recognised net via the items ‘Other ordinary expenses’ or ‘Other ordinary income’, as appropriate.

Where default-risk-related and market-related changes in book value are separated, those related to default risks may be recognised in the item ‘Changes in value adjust-ments for default risks and losses from interest opera-tions’.

x x x x ARB 383 It is also possible to accrue the premium/discount over the term and therefore value on the basis of the amortised cost (as long as the fair value is not lower), even if the amor-tised cost is higher than the historical cost. Use of this op-tion must be disclosed in the accounting and valuation principles.

x x x x ARB 384 Equity securities, own physical precious metal holdings, real estate properties and commodities that have been ac-quired as a result of credit activities and are intended for resale are to be valued at the lower of cost or market value.

In the case of real estate properties acquired via credit ac-tivities and intended for resale, the lower of cost or market value is deemed to be the lower of the acquisition value or the liquidation value.

Changes in book value are to be recognised net via the items ‘Other ordinary expenses’ or ‘Other ordinary in-come’, as appropriate.


x x x x ARB 401 In the case of structured products that are separated out and valued accordingly, the underlying instrument is to be valued and in accordance with the valuation princi-ples applying to the underlying instrument.

The derivative of structured products is to be valued at fair value. (Detailed regulations see section 6.2, Structured products, page 78)



Type of FS

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2.10.3 Recording





x x x x ARB 381 If financial investments intended to be held until maturity are sold or repaid prior to maturity, the profits and losses realised that correspond to the interest component are not to be recognised immediately, but must instead be accrued over the remaining term to maturity.

x x x x ARB 385 In the case of financial investments valued at the lower of cost or market value, an upwards revaluation to the histor-ical or amortised cost at maximum is to be recognised where the fair value falls below the acquisition cost and then recovers. The balance of the changes in book value is recognised via the items ‘Other ordinary expenses’ or ‘Other ordinary income’, as appropriate.


2.11. Accrued income and prepaid expenses

2.11.1 Recognition


x x x x ARB A2-62 - All accruals of interest and other income statement items, premiums on asset items and discounts on liabil-ity items, and assets arising from other prepaid and ac-crued items are to be recognised here (transitory as-sets).

2.11.2 Valuation

x x x x ARB 16 Expenses and income that occur in a given period are to be accrued and recognised in that period.

2.11.3 Recording





Type of FS

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ARB 39 - Offsetting of deferred tax liabilities and assets in respect of the same tax authority, provided they relate to the same tax subject.

x x x x ARB 61 Liabilities where the original value is lower than the nomi-nal value may be recognised either at their net value or at their gross value combined with an offsetting adjustment entry (discount) under ‘Accrued income and prepaid ex-penses’. In both cases, the discount is to be reversed through Interest expense over the term of the liability in accordance with the accrual method. The same applies, mutatis mutandis, to premiums.

2.12. Participations

2.12.1 Recognition


x x x x ARB 386 ARB A2-64

- Equity securities owned by the bank that are held for the purpose of permanent investment, irrespective of the percentage of voting shares held;


- Participations owned by the bank and that are of an in-frastructure nature for the bank, in particular participa-tions in joint organisations;


- Amounts due from undertakings in which the bank holds a permanent participation, if such amounts are deemed to be equity for taxation purposes.

2.12.2 Valuation

x x x x BO 27.2 Participations, tangible fixed assets and intangible assets are valued individually in all cases.

x x x x BO 69.2 The individual valuation of participations according to BO 27.2 has to be implemented as of 1 January 2020, at the latest.

x x x x ARB 388 Impairment testing is carried out in accordance with the provisions of ARB 477 ff.

x x x x ARB 477 Participations, tangible fixed assets and intangible assets are to be tested for impairment at each balance sheet date. This test is to be based on indications reflecting a possible impairment of individual assets. Where such indications are present, the recoverable amount is to be determined. (Detailed regulations see section 6.6, Impairment, page 85)



Type of FS

Basis Provision


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x x x x ARB 489 Where there is a significant improvement in the factors taken into account in calculating the recoverable amount, an impairment recognised in previous reporting periods is to be partially or fully reversed.

x ARB 489 In reliable assessment statutory single-entity financial statements, reversal of the impairment is not mandatory. A non-reversal results in the creation of hidden reserves.

x x ARB 387 The legal maximum limit is the acquisition value less eco-nomically necessary value adjustments.

x ARB 389 In the case of true and fair view statutory single-entity fi-nancial statements, participations are also to be recog-nised at acquisition value, with the impact of a theoretical application of the equity method for participations over which the bank can exert a significant influence being dis-closed in the notes.

x ARB 390 Influence is deemed to be significant where 20% or more of the voting shares are held.

x x ARB 391 In true and fair view supplementary single-entity financial statements and consolidated financial statements, partici-pations over which the bank can exert a significant influ-ence are to be valued using the equity method.

x x ARB 392 The goodwill resulting from an acquisition is to be sepa-rated and reported in the item ‘Intangible assets’.


x x x x ARB 24 A prudent valuation is applied where there is uncertainty regarding valuation and risk assessment. In such cases, the more prudent of two (or more) objectively substantiated values or methods must in principle be applied. The values or methods may not be based on unfounded assumptions or merely subjective criteria.

x x ARB 63 The individual provisions set out in CO 670 (for statutory single-entity financial statements of banks in the form of companies limited by shares) are applicable, subject to ARB 240 ff.

x x ARB 257 A revaluation of real estate and participations in excess of their acquisition costs in the case of banks in the form of a company limited by shares is to be dealt with in accord-ance with the provisions of CO 670 and reported to FINMA before the financial statements are published.

x x CO 670.1 Where as a result of a net loss for the year the company's capital cover falls below one-half of the share capital and the legal reserves, in order to rectify the negative net worth, the company may revalue land, buildings or equity participations whose real value has risen above their value stated at cost up to a maximum equal to one-half of the share capital and the legal reserves. The revaluation amount is stated separately as a revaluation reserve.



Type of FS

Basis Provision


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S

TS

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Co

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Y

NA

NM

x x CO 670.2 The revaluation is permitted only where a licensed auditor issues written confirmation for the attention of the general meeting that the revaluation complies with the relevant statutory provisions.

2.12.3 Recording





2.13. Tangible fixed assets

2.13.1 Recognition


x x x x ARB A2-68 - Real estate except for assets recognised under ‘Finan-cial investments’;

x x x x ARB A2-69 - Balances of construction and renovation accounts;

x x x x ARB A2-70 - Constructions on properties owned by third parties;

x x x x ARB A2-71 - Other tangible fixed assets;

x x x x ARB A2-72 - Tangible assets under finance leases;

x x x x ARB A2-73 - Proprietary or acquired software.

x x x x ARB 444 Tangible fixed assets are physical assets and are used for rendering services or for investment purposes. They can be either acquired or produced internally.

x x x x ARB 446 Expenditures for new tangible fixed assets are to be recog-nised as assets if they have a net market value or value-in-use, are used for more than one accounting period, and ex-ceed the minimum threshold for recognition as an asset.

x x x x ARB 447 Subsequent expenditures for existing tangible fixed assets are to be recognised as assets if, as a result, the market value or value-in-use is permanently enhanced or the use-ful life is significantly extended and they exceed the mini-mum threshold for recognition as an asset.

x x x x ARB 448 The minimum recognition threshold of a tangible fixed as-set is set by the bank itself as part of its process for as-sessing materiality and stipulates the smallest value/ quantity that is to be recognised as an asset.

FINMA circular 15/1 Accounting - Banks - PwC...PwC2 Introduction FINMA circular 15/1 ‘Accounting...

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Transcript of FINMA circular 15/1 Accounting - Banks - PwC...PwC2 Introduction FINMA circular 15/1 ‘Accounting...