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Consolidation Scope IFRS group/CRD group Category: General questions Question: According to point 2 of FINREP General Guidelines, the package is intended to be used by credit institutions to elaborate their consolidated financial statement in IFRS, as reported to their supervisor. The scope of consolidation of FINREP can be either the IFRS scope (which includes all the subsidiaries) or the CRD scope (more restricted). Frequently, the banking groups are composed, in addition to credit institutions, by insurance entities and non-financial companies. However, if the "IFRS scope" is asked, the FINREP templates do include neither specific items nor guidelines to register the particular activities of those entities. Consequently, regardless of recognition and measurement criteria for insurance contracts, it is necessary to resolve how should the specific activity of subsidiaries that are not credit institutions be registered. Furthermore, when a supervisory authority requires to their credit institutions the information of the “IFRS scope” and the “CRD scope”, it should be appreciated to know how the reconciliation of both set of financial information could be presented. Answer: 1) Insurance and Non-Financial Entities Insurance Entities As the general rule, the liabilities and assets arising from insurance and reinsurance contracts could be registered in “Other liabilities” or “Other assets”. However, when it is deemed to be relevant for the purposes of supervisory authority, those specific items may be disclosed separately according to IFRS 4, IG 20. In addition, we have to consider that IFRS4.10-12 states that deposit components unblundled from insurance contracts should be treated according to IAS 39 and, thus, they should be classified as deposits under either the item “Financial liabilities measured at amortised cost” or the item “Financial liabilities designated at fair value through profit or loss”. The income and expenses arising from insurance contracts have a specific nature that makes necessary to determine in which Income Statement lines should be included. The amounts of insurance and reinsurance premiums received and reassurance income could be registered in “Other operating income” and the amounts of reinsurance premium paid, benefits paid, net provision for insurance contract liabilities and other insurance-related expenses could be included in “Other operating expenses”. However, when it is deemed to be relevant for the purposes of supervisory authority, those specific items may be disclosed separately according to IFRS 4, IG 24. Non-Financial Entities The liabilities and assets that due to their nature could not be classified in specific Balance Sheet items (such as inventories) should be registered in “Other assets” or “Other liabilities”. The income and expenses of Non-financial entities should also be classified by nature together with those related to the credit institutions’ activity. Sales and income from the provision of non-financial services could be included in “Other operating income” and the cost associated to those sales (such as reductions in inventories) in “Other operating expenses”. 2) Reconciliation of "IFRS Scope" and "CRD Scope" To have a harmonised way to collect the information, those supervisory authorities that require credit entities to use FINREP to elaborate consolidated financial information with both "CRD scope" (for regulatory purposes) and "IFRS scope" (e.g. to obtain information prepared with the same criteria as for annual accounts), could disaggregate the amount declared in application of the “IFRS scope”. The following breakdown of this amount can be used (i.e. contribution of): - CRD scope; - Insurance; - Other entities; - Adjustments and eliminations The data to be included in the different columns should be the following: • IFRS scope. The amounts that figure in the financial statements elaborated for the "IFRS scope". • CRD scope. The amounts of the financial statement elaborated for the "CRD scope". • Insurance. The result of the aggregation of the Insurance subsidiaries’ individual statements. This aggregation will be made by adding the figures of the individual statements without the adjustments and eliminations required by consolidation procedures (these adjustments and eliminations are showed into the last disaggregate). • Other entities. The result of the aggregation of the Non-Financial subsidiaries’ individual financial statements (again before adjustments and eliminations). • Adjustments and elimination. It includes the adjustment and eliminations required to make the sum of the amounts consigned in the columns “CRD scope”, “Insurance” and “Other Entities” equal to the amounts included in the column “IFRS scope”. Action needed: Submitted on: 5/1/2007 Answer published: 5/1/2007