Strengthening of the annual financial statements of companies that are in some cases explicitly regulated is a legal obligation stemming on the part of international practice and on the other side of prudential requirements and supervision. Specificity and impact on the banking, financial and economic environment, coupled with the trend of globalization of banking, requires more than paying special attention to strengthening of the annual financial statements of the banks. On paper, there are presented a series of issues related to the strengthening of the annual financial statements of the banks which are Romanian legal entities.Bank/ Financial situations consolidation/ Regulation/ Strengthened report/ Audit

Troaca, Mihaela-Elvira

Troaca, Victor

English

Research Papers in Economics

STRENGTHENING THE ANNUAL FINANCIAL STATEMENTS OF 
THE BANKS
Ph. D. reader  Victor Troacă
Mihaela-Elvira Troacă 
University „Titu Maiorescu” Bucharest
Abstract: 
Strengthening of the annual financial statements of companies that are in some cases explicitly 
regulated is a legal obligation stemming on the part of international practice and on the other side of prudential 
requirements and supervision. Specificity and impact on the banking, financial and economic environment, 
coupled with the trend of banking globalization, requires more than paying special attention to strengthening of 
the annual financial statements of the banks. 
On paper, there are presented a series of issues related to the strengthening of the annual financial 
statements of the banks which are Romanian legal entities. 
1. Regulatory requirements for strengthening the annual financial statements 
One of the components of prudence measures adopted by the competent authorities 
with the regulation and supervision of financial markets at national and European level is 
mandatory consolidation of accounts.
Romania as a member of the European Union and the harmonized national regulations 
with the European consolidation of accounts of companies. For the banks have been issued by 
the appropriate rules by the regulators autority, concerned by National Bank of Romania. 
In accordance with national regulations, companies are required to prepare annual 
consolidated financial statements may make such situations according to the regulations or 
accounting in accordance with Directive VII of the European Economic Community, under 
International Financial Reporting Standards.
Operation of consolidation of accounts by banking companies, Romanian legal 
persons, is mandatory in certain situations expressly covered. Thus in Romania, according to 
legal regulations, the banks Romanian legal entities, are required to prepare consolidated 
financial statements and annual reports consolidated administrators unless a joint bank 
together with one or more entities that are subsidiaries of its form a banking group, the 
meaning Romanian legislation. This regulatory requirement is mandatory for any banking 
institution - romanian legal persons, if they are in one of the following situations: 
· directly or indirectly owns a majority of voting rights to another entity, which in 
juridic effect  is a subsidiary of it; 
· detentions capital as a shareholder or member of his right to appoint or remove a 
majority of the members of the management or control or majority leaders of other 
entities; 
· has the right to exercise a dominant influence over an entity which is a shareholder or 
member, under clauses contained in contracts concluded with the entity or of 
provisions contained in the memorandum of that entity; 
· is a shareholder or member of an entity - and controls alone, under an agreement with 
other shareholders or members, the majority of the voting rights in that subsidiary. 
1A banking institution that is in a position to hold one or more subsidiaries and the 
conditions above is called parent. 
Must be made to specify that in situations where a subsidiary or other person acting on 
behalf of a parent, voting rights and the right to appoint or revoke thereof, should be added to 
those of the parent. 
Annual financial statements of a bank, in its parent company and its subsidiaries 
should be consolidated, regardless of where they are located premises of social branches. 
From the general principle there can be some exceptions in certain situations expressly 
covered. Please note that not qualify for the exemption of preparation of the consolidated 
financial statements, banking companies whose securities are officially listed on a regulated 
market in Romania or in a Member State of the Union. 
2. Designing the consolidated financial statements 
Banking companies-Romanian legal entities, which together with its subsidiaries are a 
banking group, are required to prepare consolidated financial statements in accordance with 
international accounting standards adopted in accordance with the procedure laid down in 
Article 6, paragraph 2 of Regulation nr.1606/2002 European Parliament and Council of 19 
July 2002 on the application of international accounting standards. 
In the process of drawing up consolidated financial statements, it is necessary to take 
account of legal obligation that rests with the group to present information in accordance with 
the requirements of international accounting standards and provisions contained in the 
accounting rules in accordance approved by the National Bank of Romania. It is also 
necessary that the notes to the consolidated financial statements to provide at least one set is 
information that can not miss those relating to: 
a) nomination entities included in the consolidation of head office and share 
capital held within them; 
b) an indication of entities associated with an entity included in the consolidation, 
and the fraction of their capital held by entities included in the consolidation or 
persons acting on their behalf. 
c) description of the associated entities included in the consolidation and the 
conditions under which exercise the common; 
d) the holding of up to 20% of the entities included in consolidation with other 
entities that do not meet the requirements listed above; 
e) the average number of employees engaged in financial exercised by entities 
included in the consolidation, broken down by categories, and personnel costs 
for the financial year and the average number of employees employed during 
the financial year by entities that are controlled jointly; 
f) the amount of remuneration granted during the financial year members of the 
administration, management and control of the company - the parent by virtue 
of their responsibilities in society - parent and consolidated entities 
g) g) the amount of advances and loans granted by the bank, as a parent and 
consolidated entities, members of the administration, management and control 
of the company's banking and commitments made by the bodies concerned in 
these people by way of guarantee of any kind.
Such information has a minimal, but a financial group –Bank- may communicate any 
relevant information which it deems necessary.
23. The report strengthened the management 
Administrators of banks that together with one or more of its subsidiaries form a 
banking group, shall for each financial year to produce a consolidated report of administrators 
including at least a fair review of the performance and development activities and position 
entities included in the consolidation, considered as a whole, together with a description of the 
main risks and uncertainties that they face. 
The revision is a balanced and comprehensive analysis of business development, 
results and the overall situation of the entities included in the consolidation, considered as a 
whole, appropriate size and complexity of the work. To the extent that it is necessary to 
understand the evolution of the business, or the results of the entities, the analysis covers both 
financial indicators and, where appropriate, key non-financial indicators of performance, 
relevant to specific activities, including information on environment issues and employees. 
In the analysis,  strengthened  the management report contains, if  any,  references  and 
additional information on the amounts presented in the consolidated financial statements. 
The report strengthened  the management  should  also  contain,   and a range of 
information about entities enter into the composition of the group on: 
· any major events since the end of the year; 
· developing predictable entities concerned, considered as a whole; 
· activities of those entities considered as a whole, research and development; 
· objectives and political entities on financial risk management, including their coverage 
of each major type of forecasted transactions that is used for hedge accounting; 
· exposure to price risk, credit risk, liquidity risk and the risk of cash flow; 
· a description of the main features of the systems of internal control and risk 
management of the group, in connection with the process of preparation of the 
consolidated financial statements, where the securities of a credit institution are 
admitted to trading on a regulated market, as it is defined in the legislation in force on 
the capital market. 
Members of the administration, management and supervision of the banking group to 
prepare consolidated financial statements and consolidated report of the joint administrators 
have an obligation to ensure that the consolidated financial statements and consolidated report 
of the administrators are prepared and published in accordance with national legislation. 
4. Auditing annual consolidated financial statements 
In accordance with the laws referred to above, the annual consolidated financial 
statements of banking groups must be audited by auditors. Based on the analysis carried out in 
accordance with the procedures of the audit, auditors have an obligation to express an opinion 
on the degree of conformity of the report strengthened the management of the annual 
consolidated financial statements for the financial year. 
Conclusions auditors are formalized in a report, which must include at least the 
following elements: an introduction that identifies at least the annual consolidated subject to 
audit, together with the financial reporting that has been applied in preparing them; a 
description of the scope audit, which identifies at least auditing standards under which the 
audit was conducted, an audit opinion that expresses clearly the auditors that the annual 
consolidated gives a true and fair view in accordance with the relevant financial reporting 
and, after case, if the annual consolidated comply with legal requirements. Audit opinion can 
3be unqualified, with reservations, a contrary opinion, or if auditors were not able to express an 
audit opinion, expression of views impossible. 
Also in the report there should be an explicit reference to any matters on which the 
auditors draw attention by a separate paragraph, without the audit to be reserves, and the 
auditor's opinion on the line. 
5. Availability annual consolidated financial statements 
As the financial company's annual banking as a parent, and the annual consolidated 
financial statements at group level, accompanied by the administrators for the financial year 
in question and the auditors, should be subject to the approval of a general meeting of 
shareholders or members, according to the laws in force . After approval, the banks have the 
legal obligation to submit to the National Bank of Romania and the direction of the territorial 
Ministry of Economy and Public Finance at which the credit institution is registered, a copy 
of the annual financial statements of the credit institution with a copy of the report 
administrators for the financial year, and the auditors' report on the annual financial 
statements. 
After approval, the annual report of a company bank becomes available to all members 
or shareholders, for consultation at its head office. Annual reports may also be distributed free 
to shareholders or members. 
Government  corporate  rules   and  legal  regulations  require  that  annual  financial 
statements, duly approved, and administrators report, together with auditors report to be 
published. The publication can be achieved in whole or in a form. 
It should be pointed out that when the annual financial statements shall not be 
published in full, it is necessary to specify that the published version is an abbreviated form 
and to refer to the Trade Register which were submitted annual financial statements in 
question. 
It noted that the audit report financial not be published, but it is imperative that the 
published documents to be made to specify whether it was an opinion expressed unqualified 
audit, with reservations or not, or if auditors were not able to express an audit opinion. It is 
also necessary to mention that the audit report referred to issues on which the auditors draw 
attention by a separate paragraph, without the audit to be reserves. With the publication of the 
annual financial statements must be published and proposed distribution of profits or hedge 
accounting loss. 
Companies are banking on the possibility that the next annual financial statements 
prepared in national currency, to publish these situations and in Euro, converted by using the 
exchange rate in effect at the balance sheet date. 
All issues listed on the annual financial statements prepared by a banking company are 
applicable and approved consolidated financial statements, strengthened the management 
report and the report prepared by the person responsible for auditing the consolidated 
financial statements. 
In cases where the banks that have branches in member countries of the European 
Union   and   reinforces   the   annual   financial   statements   in   accordance   with   Romanian 
accounting rules are required to publish annual financial statements and the consolidated 
financial statements prepared in each Member State of the Union in which those institutions 
have branches. 
46. Conclusions 
The consolidation of the annual financial statements of the banks is a very important 
operation to be prepared and carried out with consummate professionalism by a large number 
of internal and external stakeholders. 
Compliance with the sequence of steps and presented their requirements on which it 
insisted during the work are likely to ensure quality, consistency and compliance throughout 
the process of consolidation of the annual financial statements of the banks. 
How to achieve publication of information must respond on the one hand, regulatory 
requirements, and on the other hand the financial communication needs of each company in 
the banking side.
Bibliography:
1. 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, 
www.eur-lex.europa.eu
2. Directiva a IV-a a Comunităţilor Economice Europene 78/660/CEE din data de 25 iulie 
1978 privind conturile anuale ale anumitor tipuri de societăţi comerciale,  JO al al Uniunii 
Europene nr. L 222 din 14 august 1978, cu modificările şi completările ulterioare, 
www.eur-lex.europa.eu 
3. Ordinul   guvernatorului   Băncii   Naţionale   a   României   nr.5/2005   pentru   aprobarea 
Reglementărilor contabile conforme cu directivele europene, aplicabile instituţiilor de 
credit, Monitorul Oficial al României, Partea I, nr.1.182 şi nr.1.182 bis din 28 decembrie 
2005, cu modificările şi completările ulterioare, www.bnr.ro 
5

Directiva a IV-a a Comunităţilor Economice Europene 78/660/CEE din data de 25 iulie 1978 privind conturile anuale ale anumitor tipuri de societăţi comerciale,

Strengthening the annual financial statements of the banks

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics