Annual accounts of banks and other financial institutions

SUMMARY OF:

Council Directive 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions

WHAT IS THE AIM OF THE DIRECTIVE?

It seeks to harmonise the format and contents of the annual accounts, including consolidated accounts*, of all financial institutions within the European Union (EU).

KEY POINTS

The directive applies to most credit institutions (e.g. banks) and other financial institutions, with a few exceptions such as:
- Greece: ETEBA (National Investment Bank for Industrial Development);
- Ireland: industrial and provident societies*;
- United Kingdom (1) (UK): friendly societies* and industrial and provident societies.
Standard balance sheet layout: assets and liabilities are presented in decreasing order of liquidity.
There are special rules for certain balance sheet items such as cash in hand, treasury bills, loans and advances to credit institutions, amounts owed to credit institutions, etc.
There are 2 standard profit-and-loss account layouts: a vertical layout and a horizontal layout.
There are special rules for certain items in the profit-and-loss account such as interest receivable, income from securities, net profit or loss on financial operations, etc.
There are valuation rules for assets, financial fixed assets, securities held by credit institutions, transferable securities, loans and advances, variable-yield securities*, and assets and liabilities denominated in foreign currency.
There is a detailed list of the required contents of the notes on the accounts.
There are separate rules relating to the drawing up of consolidated accounts.
Publication of annual accounts is as laid down by national law. Where the annual report is not published, copies must be available at a price which is not more than their administrative cost.
There are special concessions for public savings banks. For example, where statutory auditing is reserved for an existing supervisory body, a separate audit is not required.
Directive 2006/43/EC aims to improve the credibility of financial information and to step up the protection of the EU against financial scandal. It contains, among other things, rules on the requirement for external quality assurance (e.g this quality assurance must be independent of the reviewed statutory auditors and audit firms and subject to public oversight), the use of international standards, duties of the statutory auditors and principles regarding auditors’ independence.

FROM WHEN DOES THE DIRECTIVE APPLY?

It has applied since 23 December 1986. EU countries had to incorporate it into national law by 31 December 1990.

* KEY TERMS

Consolidated accounts: where the accounts of a group of companies comprising the parent company and its subsidiaries are combined.

Industrial and provident societies: in Ireland and the UK (1), a form of mutual society, which is a legal entity and is owned by its members, run either as a co-operative or for the benefit of the community.

Friendly societies: in the UK (1), a form of mutual association that provides its members with benefits such as life assurance and with relief or maintenance during sickness, unemployment and retirement.

Variable-yield securities: securities whose owners receive an income that may vary over time.

MAIN DOCUMENT

Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions (OJ L 372, 31.12.1986, pp. 1–17)

Successive amendments to Directive 86/635/EEC have been incorporated into the basic text. This consolidated version is for information only.