Basel III vs Accounting Standards in the Liquidity Reporting

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International Conference on Accounting & Finance (ICAF) - 2014, Colombo, Sri Lanka http://financeconference.co/ "Basel III vs Accounting Standards in the Liquidity Reporting" Nadia Cipullo Rosa Vinciguerra

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Hosted by: Basel III vs Accounting Standards in the Liquidity Reporting Nadia Cipullo Rosa Vinciguerra Academic Partner:

Basel III vs Accounting Standards in the Liquidity Reporting:

Basel III vs Accounting Standards in the Liquidity Reporting Rosa Vinciguerra PhD - Assistant Professor of Accounting SUN - Second University of Naples rosa.vinciguerra@unina2.it Nadia Cipullo Phd – Lecturer of Accounting Link Campus University n.cipullo@unilink .it

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OUTLINE Framework Basel III (liquidity risk) IFRS 9 Critical Aspects Conclusions

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Framework Liquidity and Liquidity Risk Liquidity can be viewed as the essential resource that permits a company to replace its liabilities, meet contractual obligations, and fund growth, all at reasonable price, as and where needed Liquidity Risk consists of many components: Asset Liquidity Risk; Funding Liquidity Risk; Liquidity Mismatches Risk; Liquidity Contingencies Risk.

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Framework Liquidity Issue Liquidity Issue affects both: the management perspective , related to the information the bank itself needs in order to appreciate, deal with, monitor its liquidity profile t he financial reporting perspective , associated to data used by investors and regulators Basel III and IASB standards shape the information produced by banks

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Basel III – Liquidity Risk Objectives The Basel III proposals have the objective to strengthen global liquidity regulations with the goal of promoting a more resilient banking sector . Banks will be obliged to manage the profile of their investments in order to promote short- term and long-term resilience through two ratios:

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Liquidity Coverage Ratio both refer to stress period refer to 30 days Stock of High Quality Liquid Assets Total Net Cash Outflows Over the next 30 days ≥ 100%

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Net Stable Funding Ratio both refer to 1 year and to stress period

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IFRS 9 – Objectives The objective of the IFRS 9 is to provide users of financial statements with “ relevant and useful information […] for their assessment of the amounts, timing and uncertainty of the entity ’ s future cash flows ”

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IFRS 9 – Description - Financial Assets

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Critical Aspects Considering the different viewpoints of Basel Committee and IASB, there could be competing needs between receivers of financial reporting information :

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Critical Aspects Dual Reporting – High Quality Liquid Assets the Fair Value could not be a current market value the Fair Value can be determined using valuation techniques, implying various judgments by the accountant As a consequence , Basel and the IASB disciplines may introduce a “ dual reporting ”

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Conclusions the IASB should think about the chance to issue a standard specific for the banking sector : indeed the management of financial instruments while represents the core business in the banking sector, has just a secondary role in non financial entities, so it is desirable to have a differential treatment as the dual reporting may generate political costs, it could be useful to recompose the different perspectives

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THANKS!

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