Study On Accounting And Information Disclosure Of Commercial Banks

In recent years there happened many earthshaking cases in the industry of commercial banks,which incurred tremendous loss to the banking business over the world. Centuries-old world famousBaring Bank gone bankrupt in 1997 due to huge loss suffered from the stock price index futurestransactions. The outstanding Japanese bank, Yamato Bank incurred 1.1 billion US dollars loss for itsillegal trading of treasury bonds of USA. Since 1970's the three financial crises gave the commercialbanks of many countries head-on blows. Disasters made them aware of the fact that accounting andinformation disclosure of commercial banks is of great importance to the security of commercialbanks and even the whole financial system. The current situation of the accounting and informationdisclosure of commercial banks is, to a great extent, out of date, which set a hidden trouble in thesafe operations and stable development of commercial banks. This dissertation focuses on andprobes into the subject, the accounting and information disclosure of commercial banks, to whichgreat interest was paid by the financial community and accounting community. It sets up a fairvalue model and a theoretical framework of the accounting and information disclosure ofcommercial banks to enhance the transparency in financial banks. The dissertation chooses thecomparatively stable and mature international financial market as the accounting environment tostart discussion so that the accounting and information disclosure problems are best focused on..The dissertation analyses the importance of the accounting and information disclosure to thecommercial banks from both static and dynamic dimensions. Historically speaking, the commercialbanks were born to bear high risk, relying heavily upon accounting, therefore the process control andidea summarization of booking system is undoubtedly important to the risk management. As thedevelopment of commercial banks and increasingly sophisticated businesses related thereto, the saidreliance was correspondingly strengthened and demanded more on accounting and informationdisclosure. Statically speaking, it is found that there emerged the following features in moderncommercial banks, i.e., sophisticated business, globalization of financial market, securitization,computerization of management, diversification of financial service and legalization of monitorsystem etc, all of which boosted the risks in operation. The said situation enabled the banks to attractcash inflow through more channels, however, it increased the complexity and uncertainty in cashflows at the same time. As the operational decisions depend more upon financial information ofbanks, information disclosures provide not only important sources for us to understand bankbusiness structure, risk position and performance measurement, but also basis of forecast, decisionand supervision. However, the accounting community has not pay enough attention to specialrequirement on accounting and information disclosure due to particularity in bank operation risksand the rapid development of commercial banks, which caused the transparency problem to becomea disturbing problem in financial industry.The basic way to enhance the transparency of bank is to develop high quality accountingstandards and improve the information disclosure, that's why this dissertation follows the features ofmodern commercial banks, reviews the concept framework of the accounting and informationdisclosure of commercial banks. As a special entity, commercial banks is unique in objectives ofaccounting and information disclosures, i.e., not only provide useful information to existing andpotential investors for rational decision-making, but also provide information pertaining to safetyand return on fund to existing and potential debtors, as well as the information to supervisors whocan study the financial situation to prevent and solve financial risks. In banking practice, the interestsof debtors are more important than investors, and supervisor of various countries gives priority to theformer. Meanwhile, the regulatory agencies require commercial banks to provide information thatcan assist them in evaluate performance and operation of commercial banks, which can be furtherbroken down into the following aspects: liquidity, safety, profitability, quality of assets, adequacy ofcapital, and effectiveness of management and internal control. Regulatory agencies also expect thatmarket discipline can be maintained by improving the quality and transparency of accountinginformation of commercial banks, based on which the efficiency of regulation can be enhanced.These specific objectives also have certain particular impacts on accounting standards adopted bycommercial banks. For example, accounting standards should be in line with the risk managementand control practices of commercial banks;they should ensure the proper functioning of marketdiscipline;and should facilitate rather than restrict the effective regulation upon commercial banks.These features give more connotations to the traditional accounting principles such as relevance,reliability and understandability. But, because of the variability of the financial systems amongcountries, and of differences in the scale and function of commercial banks throughout the world,accounting and information disclosure differs greatly from country to country, and from bank tobank. This has constituted tremendous obstacle to globalization and integration of capital markets.Thus a set of uniform high-quality accounting standards for commercial banks are pressed for. Thisdissertation goes on with discussion of standard model that addresses this requirement. This standardmodel requires that all financial assets and financial liabilities to be valued at their fair value, andgains or losses arising from change in fair value to be recognized at the same time.This accounting model for financial instruments is based on fair value, which is stronglyopposed by the commercial bank community. Relevance and reliability of fair value has been widelyquestioned. This dissertation summarizes the achievements of accounting research in recent years,including both authoritative discussions of normative research and convictive conclusions ofempirical research, based on which the superiority of fair value in information quality over historicalcost is fully demonstrated. In addition, a set of high quality accounting standards aiming at effectiveimprovement of transparency of commercial banks can be established by modifications made toprinciples on revenue recognition and recognition, de-recognition and disclosure of financial assetsand financial liabilities. This dissertation also inaugurated an analysis on several issues anddifficulties on the application of fair value to commercial banking business, such as operationalguidance of components approach, accounting for securitization and service rights, determination offair value in different market environments, measurement of loans, difficulties in accounting fordemand deposits and credit cards, and presentation and disclosure under fair value accountingmodel.In the background of globalization of economy and capital market and internationalization ofaccounting standards, this dissertation also fully analyzed the highly effective efforts made byInternational Accounting Standard Board and Basel Committee to improve accounting andinformation disclosure of commercial banks, and the feasibility of applying fair value to accountingand information disclosure of commercial banks was further discussed. IASC, throughcomprehensive international cooperation, has been constantly promoting its international standing inrecent years. Especially, the acceptance of international accounting standards by IOSCO establishedits position as the setter of global accounting standards. IASC has cooperated with standard-settingorganizations of more than 10 countries (including USA, UK and France) to establish a set ofaccounting standards for financial instruments based on fair value, which greatly enhanced itsoperability. Basel Committee, as the most important international regulator of commercial banks, hasalso contributed greatly to improvement of information disclosure in recent years. Recently, BaselCommittee, in many of its articles and papers, has recommended best practice of informationdisclosure to commercial banks. In the latest exposure draft of Basel Agreement, a risk-orientedmodel of information disclosure is proposed. Aiming at the same objective, IASC and BaselCommittee began cooperation, which is undoubtedly the most important signal to the revolution inaccounting and information disclosure model of commercial banks. So the dissertation alsodiscussed in depth the cooperation and divergence of these two most important internationalorganizations in recent years. Finally, this dissertation, by commenting on the development offinancial markets of China, analyzed the status quo of accounting and information disclosure ofChinese commercial banks and its difference from international accounting standards. Thisdissertation also pointed out that international standards of accounting and information disclosure ofcommercial banks should be introduced to China as soon as possible. In addition, it also madeseveral recommendations on approaches and methods of internationalization.This dissertation is divided into seven chapters. Chapter 1, by studying on several tremendousdisasters that happened to commercial banks, revealed deficiencies in the status quo of accountingand information disclosure of commercial banks. Chapter 2 analyzed the special requirements onaccounting and information disclosure of commercial banks. Chapters 3 and 4 discussed theoreticalissues of conceptual framework of accounting and information disclosure of commercial banks,including its objectives and principles. Chapter 5 discussed the application of the defined fair valueframework to solve the problems encountered by commercial banks in accounting and informationdisclosure. Chapter 6 probed into the promotion of accounting and information disclosure by IASCand Basel Committee. Chapter 7 commented on the status quo of accounting and informationdisclosure of Chinese commercial banks, and envisaged its development in the future.