Financial Data Report

Financial Data Report

This financial data report should be implemented by 1 January 201 3 in accordance with the provisions of the new EX. CAR Regulation. On the other hand, as part of the implementation of the Banking and Credit Adequacy Directives, S Lola (7) of the German Banking Act (AWG) obliges all parent institutions to use consolidated accounts as the basis for determining their own funds and risk exposure for the purpose of solvency reporting (Common Reporting Framework, CORER)2. Current legislation requires groups of institutions to create both the FINGER and CORER reports with the regulatory consolidation group set out as per Aide of he AWG.

As well as the problem of differing consolidation groups between the FIRS and the AWG, consideration should also be given to the different consolidation techniques used in the conversion of group institution reports based on FIRS;consolidated accounts. What follows is an overview of the differences between groups of consolidated companies under regulatory provisions and commercial law. As the consolidation group outlined in the German Commercial Code (HUG) largely matches that outlined by the FIRS in the wake of the changes made to the HUG in the German Accounting Law

Modernization Act (Billow), the provisions below will only be considered in further detail in accordance with the FIRS. This will illustrate deviations from provisions set out in the AWG. Consolidation methods will then be briefly presented. Finally there will be a short summary of the article. Differences in the definition of the consolidated group The authority of the regulatory consolidation group to determine own funds and risk exposure (and also for the creation of FINGER reports) is enshrined in AAA (1-5) of the AWG.

In reconciling the FIRS consolidation group to the ejaculatory consolidation group, particular consideration must be given to the differences that exist between the Law for the Implementation of the Revised Banking and Capital Adequacy Directives of 1 7 November 2006, Federal Law Gazette (BGP) 1 2006. The current draft version of the AWG provides transitional provisions that necessitate the use of FIRS accounting standards as a consolidated reporting basis before the end of 2013.

See Articles: ‘the Unforeseen an die Systems undo Attenuating durra FIRS Berthing IM Mellowness’ and ‘Basel Ill undo die Europeeschew Unsetting – Chuffing nines Single-Rule-Book’. Consolidated companies as well as the consolidation methods that are necessitated by these regulatory requirements. Non-compliant FIRS consolidation groups must adapt the following points to comply with regulatory reporting provisions: Decentralization of companies that belong to the FIRS consolidation group but that are not part of the regulatory consolidation group as per the AWG.

At present, this primarily includes all companies that do not belong to the banking and investment services sectors. Add companies that are not consolidated under the FIRS but that present subordinate companies as per the GAWK (including companies that have voluntarily become proportionately consolidated as per Solo (5) of the AWG). As per 51 Oh (1) of the AWG, a group of institutions consists of a single subordinate and multiple subordinate companies.

The subordinate company (parent institution) is an institution (a bank or financial services institution) that is not us fornicated to either another institution or a financial holding company based in Germany or another EYE state. The AWG defines subordinated companies as subsidiaries, qualified minority interests and linearity consolidated companies. Subsidiary companies as per the firs and the AWG On the issue of subsidiary inclusion, the AWG refers to the commercial law definition as per 5290 of the HUG.

According to this definition, a subsidiary is qualified for inclusion if the possibility exists of exerting a controlling influence over this company (Control Concept). The following facts make a parent-subsidiary relationship irrefutable: Majority voting rights Executive control right Contractual or statutory control rights Bearing the majority of risks and rewards in an economic sense The inclusion of subsidiary impasses under the FIRS is set out in AS 27 and SIC 12.

In content terms, the requirements for subsidiary inclusion as per the FIRS are essentially in agreement with the requirements as per 5290 of the HUG, in which the regulatory requirements explicitly refer to consolidation group composition as per the AWG. In principle, the four above-stated criteria are also subsumed under the controlling influence under the FIRS. However, a subtle difference arises if, for example, an enforceable executive control right exists as per 5290 (2)(2) of the HUG. To fulfill this criterion for the subsidiary consolidation obligation as per the HUG, the possibility of executive formation is sufficient.

In comparison, the consolidation of subsidiaries as per the FIRS is based on the definition of the control concept by which the controlling parent company holds more than 50 per cent of the voting rights (AS 27. 13). Support for the consolidation of special purpose entities (Esp..) is found in SIC 12, where the inclusion of an ESP.. In the consolidation group originates from economically justified control. 3 Subordinate firms as per Solo (1)(2) of the AWG are to be consolidated for regulatory purposes. This includes: institutions, investment companies, financial companies and companies with banking-related auxiliary services.

Horizontal corporate connections represent a special case. As per 51 Oh (2) of the AWG, such equal subsidiaries should be consolidated for regulatory purposes. 4 Joint ventures as per the firs and minority interests as per the AWG As per Solo (4) of the AWG, companies that are jointly managed with third parties should be included in the regulatory consolidation group if the subordinate company holds at least 20 per cent of the joint venture (qualified minority interests), with its responsibility for the joint ventures liabilities also being limited to this share.

The joint venture represents the counterpart to this qualified minority interest as per the FIRS. For qualified minority interests, the range of direct and indirect shareholdings typically lies between 20 and 50 per cent. As such, a shareholding of less than 20 per cent of the consolidated joint venture should be decontaminated for regulatory purposes. However, as per Solo (5) of the AWG, the possibility exists to voluntarily consolidate such joint ventures for the purposes of regulation – in case these have not been oaken account of in the preparation of consolidated financial statements as per the FIRS.

Voluntarily consolidated companies as per the AWG and associated companies as per the firs As per AS 28. 2, an associated company exists if the subordinate company can exert significant influence and the associated company is also neither a subsidiary nor a joint venture. In addition, as with the joint venture, a minimum shareholding of 20 per cent is required for classification as an associated company. As such, qualification as an associated company does not require joint management to be contractually fined – as is involved for the classification of a joint venture.

Associated companies can be compared with voluntarily included subordinate companies on a regulatory basis, as is set out in SIS (6)(4) and 51 Oh (5) of the AWG. If shareholding is below 20 per cent, it is not possible to derive a refutable assumption of significant influence. As per AS 28. 6, such shareholdings can be reported as financial instruments as per AS 39. A difference exists here between the FIRS and the AWG in the demarcation criteria of subordinate companies.

Like associate companies, portfolio impasses with a shareholding of less than 20 per cent can be proportionally consolidated on a voluntary basis as per 51 0 (6)(4) of the AWG – despite them not belonging to the consolidation group as per the FIRS. This means that the regulatory capital deduction can be avoided for investments in banks, financial institutions and payment institutions. Comparison of AWG and firs consolidation methods full consolidation of the subsidiary company In principle, the methods of full and proportionate consolidation as per the FIRS and AWG are conceptually similar.

In the case of bestiaries, both regulatory law and FIRS accounting rules state that the subsidiaries’ balance sheet items are to be fully included in the consolidation group. To create the FIRS-consolidated balance sheet, the individual items on the balance sheet and invoice statement will be summarized as individual financial statements. Capital consolidation will then be carried out to eliminate internal cross-ownership, and debt consolidation will be performed to offset internal claims and debts.

Based on the produced consolidated accounts, the combined own funds and risk positions will be determined for he purpose of institutional group reporting as per Solo (6) of the AWG. The minority interests of third parties can be considered as core capital within the capital consolidation framework. This framework is required to determine own funds at the group level as per 510 (6) (1) in conjunction with 510 (2) Of the AWG. As per AS 27. 33, minority interests should be disclosed in the consolidated balance sheet within the own funds – and separated from the own funds of the parent company.

The treatment of goodwill arising from capital consolidation presents a particular problem. The goodwill that appears from regulatory consolidation arises from the difference between the higher shareholding book value and the share of own funds held by the subordinate company on the relevant reporting date. This amount may currently be deducted within the framework of the aggregation method, taking half from both the core and supplementary capital on a proportional basis across ten years.

In contrast, the demonstrated goodwill arising from the FIRS-consolidated accounts should be completely deducted from the core capital as per SIS (AAA) of the AWG. In line with the discussion draft of a CARD IV implementation law, an existing goodwill SUIT should be fully deducted from core capital as of 2013, and then deducted in installment from common equity as of 2014. Proportionate consolidation of joint ventures For jointly managed companies, the FIRS provides a choice between proportionate consolidation and use of the equity method (AS 27. 38).

With proportionate consolidation as per the FIRS, assets, liabilities and income statement items are proportionately consolidated in accordance with the equity shares in the consolidated accounts. The elimination of intra-group transactions also takes place on a proportionate basis. For joint ventures that are proportionately consolidated under the FIRS, ASCII (1 1) of the AWG makes proportionate consolidation mandatory. This approach corresponds to the rule for the treatment of qualified minority interests as per 51 Oh (4) of the AWG. FIRS item values can be used when carrying out the consolidation.

This procedure is also applicable for regulatory consolidation group companies that have opted for proportionate consolidation – e. G. Associate companies assessed with the equity method under the FIRS. Consolidation Of companies assessed with the equity method under AS 28. 3, shareholdings in joint ventures can be included in FIRS- consolidated accounts using the equity methods. This method is mandatory for the consolidation of associate companies. In regulatory consolidation, proportionate consolidation is mandatory for both of these subordinated company forms.

Otherwise, as per AAA (5) of the AWG, the reporting parent institution may voluntarily use proportionate consolidation on its subordinate companies. Regulatory proportionate consolidation must therefore be implemented for subordinated companies that use the equity method for FIRS-consolidated accounts. 7 of the German Consolidated Financial Statements Reconciliation Regulation (Kong) deals with correcting the effects Of equity method application when the method is used simultaneously with proportionate inclusion of the shareholding company’s own funds.

According to 57 ) of the Kong, shareholdings in institutions, financial companies and ancillary service providers that have been assessed using the equity method can be included in the regulatory consolidation group. The own fund elements should be differentiated with this inclusion. In addition, as per 5>2-6 of the Kong, the FIRS’ accounting effects must be filtered out for he purposes of regulatory consolidation. As per 57 (1)(2) of the Kong, the continued shareholding value of companies assessed with the equity method should be equally deducted from both the core and supplementary capital.

In contrast, the goodwill contained therein must be deducted entirely and directly from the core capital. Associated companies that do not belong to the banking and financial services sector and therefore do not fall under the regulations outlined in SIS (6) of the AWG should be neutralized in the regulatory consolidation as per 57 (2) of the Kong. As such, the continued warehousing book value should be calculated from the group’s own funds and regarded as a risk position as per Solve.

Under FIRS 11, which will replace AS 31 , joint ventures will be included in the consolidated accounts via the equity method (FIRS 1 1. 24). The right to choose between proportionate consolidation and the equity method is eliminated. 5 In accordance with AS 31. 38, joint ventures are permitted under commercial law to be consolidated with the equity method-undo die Europeeschew Unsetting – Chuffing nines Single-Rule-Book’. The consolidation groups and procedures as per the AWG and FIRS are impaired in the diagram below.

DIAGRAM: FIRS Consolidation Group Subsidiary Companies (AS 27 and FIRS 1 0) – Full Consolidation Joint Ventures (AS 31 and FIRS 11 *) – Proportionate Consolidation, Equity Method Associated Companies (AS 28) – Equity Method AWG Consolidation Group Subsidiary Companies (SSL (7) AWG) – Full Consolidation Qualified Minority Interests (51 Oh (4) AWG) – Compulsory Proportionate Consolidation SIDE a (1 1)) Voluntary Consolidation (AAA (5) AWG) Adaptation to 57 Kong

v * as per FIRS 1 1 , joint ventures will in future lose the right to choose between consolidation ethos, instead only being able to use the equity method New firs consolidation standards In May 201 1, the International Accounting Standards Board (SAAB) for the FIRS published new standards for consolidated accounts, FIRS 10, as well as for the accounting of joint activities, FIRS 11 . These come into force as of 1 January 201 3 and thereby replace the previously applicable rules, AS 276 and SIC 12. According to the new FIRS 10 standard, the assessment Of parent-subsidiary relationships will be carried out with a new ‘Control Term’.

The option of exercising decision-making power and claiming variable profit-sharing hereby brings an obligation to carry out a full consolidation on the affected subsidiary – even with a shareholding of under 50 per cent. The amended control concept may lead to newly subordinated companies having to be added to the FIRS consolidation group. The result will be an immediate requirement for full consolidation under the FIRS. As the regulatory consolidation group remains relevant to the establishment of group reporting, the regulatory group and the classification of companies will remain unchanged even when the new accounting standards have come into Orca.

In consequence, an analysis should be carried out on the changes to the FIRS consolidation group. The process of determining the consolidation group should also be adapted to the AWG. Both Of these measures will ensure that group reporting based on FIRS-consolidated accounts accommodates the new FIRS 10. 6 For individual financial statements, AS 27 regulations will remain in force in the future. Summary As the consolidation group defined by the AWG is essential to the preparation of institutional group reporting, the transfer of regulatory group reporting to he FIRS balance sheet and the implementation of new accounting standards bring no changes with regard to regulatory law.

The differences between FIRS accounting-related consolidation requirements and the regulatory requirements set out in the AWG, including the different consolidation techniques, nevertheless present challenges with regard to the conversion of consolidation accounting processes. These challenges may necessitate a variety of procedural and technical data processing changes. Success Reply is the Reply Group company specialized in consulting services or risk management and regulatory law for customers of all sizes. Its focus lies in the following core areas: regulatory and statistical reporting systems, SAP modules for bank controlling, complete bank controlling and risk management as well as investment banking. Since 2001 Success Reply has not only been showing a very deep market knowledge of the industry but has also been providing high-quality consulting services.

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