Illustrative Consolidated Financial Statements
Il ustrativeConsolidatedFinancialStatementsFINMA Circular 15/01 Accounting - banksStatus: 12 February 2016kpmg.ch
Table of content1.Preliminary remarks 52.Highlights – New disclosure requirements 53.Illustrative consolidated financial statements 17A.Consolidated balance sheet 17B.Consolidated income statement 19C.Consolidated cash flow statement 20D.Consolidated statement of changes in equity 22E.Notes to the consolidated financial statements 24I.Name of the bank, its legal form and domicile 24II.Accounting and valuation principles 24III.Explanations of risk management, in particular on the treatment of interest rate risk,other market risks and credit risks 30IV.Explanations of the methods used for identifying default risks and determining the needfor value adjustments 35V.Explanations of the valuation of collateral, in particular key criteria for the calculationof the current market value and the lending value 35Explanations of the Group’s business policy regarding the use of derivative financialinstruments, including explanations relating to the use of hedge accounting 35VI.VII. Explanation of material events occurring after the balance sheet date 36VIII. Reasons that led to the premature resignation of the auditor 36Illustrative Consolidated Financial Statements 2
Table of ContentIX.Information on the balance sheet 371.Breakdown of securities financing transactions (assets and liabilities) 372.Presentation of collateral for loans / receivables and off-balance-sheet transactions,as well as impaired loans / receivables 38Breakdown of trading portfolios and other financial instruments at fair value(assets and liabilities) 394.Presentation of derivative financial instruments (assets and liabilities) 405.Breakdown of financial investments 426.Presentation of non-consolidated participations 437.Disclosure of companies in which the Group holds a permanent direct or indirectsignificant participation 458.Presentation of tangible fixed assets 479.Presentation of intangible assets 473.10. Breakdown of other assets and other liabilities 4911. Disclosure of assets pledged or assigned to secure own commitments and of assetsunder reservation of ownership 4912. Disclosure of liabilities relating to own pension schemes, and number and nature of equityinstruments of the Group that are held by own pension schemes 5013. Disclosures on the economic situation of own pension schemes 5114. Presentation of issued structured products 5315. Presentation of bonds outstanding and mandatory convertible bonds 5516. Presentation of value adjustments and provisions, reserves for general banking risks,and changes therein during the current year 5717. Number and value of shares or options on shares held by all executives and directors andby employees, and disclosures on any employee participation schemes 5918. Disclosure of amounts due from / to related parties 6119. Disclosure of own shares 61Illustrative Consolidated Financial Statements 3
Table of ContentX.XI.20. Presentation of the maturity structure of financial instruments 6221. Presentation of assets and liabilities by domestic and foreign origin in accordancewith the domicile principle 6422. Breakdown of total assets by country or group of countries (domicile principle) 6523. Breakdown of total assets by credit rating of country groups (risk domicile view) 6524. Presentation of assets and liabilities broken down by the most significantcurrencies for the Group 66Information concerning off-balance-sheet transactions 7025. Breakdown of contingent liabilities and contingent assets 7026. Breakdown of credit commitments 7027. Breakdown of fiduciary transactions 7028. Breakdown of managed assets and presentation of their development 71Information on the income statement 7229. Breakdown of the result from trading activities and the fair value option 7230. Disclosure of material refinancing income in the item "Interest and discount income"as well as material negative interest 7231. Breakdown of personnel expenses 7332. Breakdown of general and administrative expenses 7333. Explanations regarding material losses, extraordinary income and expenses, as well asmaterial releases of hidden reserves, reserves for general banking risks, and valueadjustments and provisions no longer required 7434. Disclosure of and reasons for revaluations of participations and tangible fixed assets up toacquisition cost at maximum 7435. Presentation of the operating result broken down according to domestic and foreign origin,according to the principle of permanent establishment 7536. Presentation of current taxes, deferred taxes, and disclosure of tax rate 7637. Disclosures and explanations of the earnings per share in the case of listed banks 76Illustrative Consolidated Financial Statements 4
1. Preliminary remarksThe Swiss Financial Market Supervisory Authority ("FINMA") Circular ("Circ.") 15/01 "Accounting - banks /Accounting rules for banks, securities dealers, financial groups and conglomerates" (hereafter "theCircular" or Accounting rules for banks, securities dealers, financial groups and conglomerates ("ARB"))has replaced the FINMA Circ. "Accounting - banks / Guidelines on accounting standards under Art. 23to Art. 27 of the Banking Ordinance" (hereafter "FINMA Circ. 08/02"). Its purpose is to complement andspecify the provisions on accounting and filing financial reports set out by the revised version of the SwissCode of Obligations ("CO"), the revised Federal Act on Banks and Savings Banks ("BA") and the revisedFederal Ordinance on Banks and Savings Banks ("BO"). The Circular introduces changes with respect topresentation requirements applicable to the minimum structure of the financial statements. It is bindingfor financial periods commencing on or after 1 January 2015. Transitional provisions are applicable to somekey areas, such as individual valuation and goodwill depreciation.This KPMG publication aims to support companies in their first application of the Circular as far as the presentation of the consolidated annual financial statements is concerned. These illustrative financial statements present the possible consolidated financial reporting for the year 2015, i.e. the first business yearafter the Circular’s first application. The following illustrative financial statements are purely fictional andmeant for illustrative purposes only (no claim for completeness). Any similarities with existing companiesare purely coincidental. Therefore, the information contained in these illustrative financial statements cannot necessarily be applied to the circumstances of a specific company. In individual cases, the completetext of the Circular should be consulted.The fictional company "Swiss Bank" is a medium-sized universal bank listed on the stock market withsubsidiaries in and outside Switzerland. These illustrative financial statements present the consolidatedfinancial statements of the Swiss Bank Group. Requirements related to the management report (Article961 CO), FINMA Circ. 08/24 on supervision and internal controls and FINMA Circ. 08/22 on the publicationof the bank’s own equity are not dealt with in this publication.2. Highlights - New disclosure requirementsThis section comments the new disclosure requirements applicable to the balance sheet, the off-balancesheet, the income statement, the cash flow statement, the statement of changes in equity and the notes.Changes from the previous circular are highlighted in green.2.1 Balance sheetThe minimum structure of the balance sheet set by the BO and the Circular foresees few amendments, mainly related to the financial instruments held by the bank. There are three new categories of financial instruments: "Amounts due from securities financing transactions", "Positive replacement values of derivativefinancial instruments" and "Other financial instruments at fair value". These three categories have also beeninserted on the liability side with one additional item for "Trading portfolio liabilities".ARB 75 to 117Value adjustments are to be allocated to and deducted from the corresponding assets. Until 31 December 2016,it is permitted to present value adjustments globally as a negative amount on the asset side. If thetransitional provision is applied, additional information on the value adjustments has to be disclosed inthe notes.BO 69.1 /Illustrative Consolidated Financial Statements 5ARB 626
2.2 Off-balance-sheetThe requirements for the presentation of the off-balance-sheet positions are similar to those prevailingunder FINMA Circ. 08/02.ARB 118 to 1222.3 Income statementThe overall structure of the income statement is similar to the one prevailing under FINMA Circ. 08/02.A new account called "Changes in value adjustments for default risks and losses from interest operations", which is included in the calculation of the "Subtotal net result from interest operations" has beencreated. The item "Income from trading activities" has been re-labelled "Result from trading activities andthe fair value option". In addition, "Depreciation and amortization of fixed assets" and "Value adjustments,provisions and losses" have been replaced by "Value adjustments on participations and depreciation andamortization of tangible fixed assets and intangible assets" and "Changes to provisions and other valueadjustments, and losses". A new item called "Changes in reserves for general banking risks" has beenadded below the subtotal "Operating result".ARB 125 to 1592.4 Cash flow statementA cash flow statement is required for consolidated financial statements and single-entity true and fair viewfinancial statements. If a financial group publishes consolidated financial statements, all entities within thescope of consolidation are exempt from preparing a cash flow statement in their statutory accounts (consolidation rebate). However, this does not apply if the entity is listed on a stock exchange. As for question 13 ofthe FINMA "Frequently Asked Questions (FAQs)" on the Circular issued on 22 July 2015, the presentation ofprevious-year figures of the cash flow statement is not required for financial year 2015.ARB 170 / 327 /341 / A6-1 toA6-9 / Article36(1) BO2.5 Statement of changes in equityThe statement of changes in equity is no longer included in the notes (table G in FINMA Circ. 08/02) as itnow constitutes an integral component of the financial statements. Presentation requirements are outlinedin Annex 4 of the Circular.ARB 171 to172 / A42.6 NotesThe notes are part of the financial statements and complement the balance sheet, the off-balance-sheet, theincome statement, the cash flow statement and the statement of changes in equity. Changes in the structureand content of the notes are discussed in the following section. Comparative figures from the previous yearmust be disclosed. In the first year of adoption, banks however have the right to leave out comparative figuresin the cash flow statement and the notes if the comparatives relate to new disclosures requirements.ARB 173 toName of the bank, its legal form and domicileThe content of the first section of the notes was changed. Mandatory information under the previouscircular (e.g. number of employees) is no longer required.ARB 182Accounting and valuation principlesThis section has to be adapted to reflect the applicable changes in accounting and valuation principles(e.g. use of the fair value option or employee participation schemes).ARB 183 to 190Illustrative Consolidated Financial Statements 6174 / 627
Explanations of risk management, in particular on the treatment of interest rate risk, other market risksand credit risksThis section remains unchanged.ARB 191Explanation of the methods used for identifying default risks and determining the need for valueadjustmentsThis is a new mandatory section.ARB 192Explanations of the valuation of collateral, in particular key criteria for the calculation of the current marketvalue and the lending valueThis is a new mandatory section.ARB 193Explanations of the Group's business policy regarding the use of derivative financial instruments, inclu ding explanations relating to the use of hedge accountingThis is a new mandatory section.ARB 194 / A5-2Explanation of material events occurring after the balance sheet dateThis is a new mandatory section.ARB 195Reasons that led to the premature resignation of the auditorThis is a new mandatory section.ARB 196to A5-82.6.1 Breakdown of securities financing transactions (assets and liabilities)[ARB Table 1]This note replaces the former table O in FINMA Circ. 08/02. The presentation of securities financingtransactions remains the same with the exception that the breakdown of fair value securities received andserving as collateral must be presented on a gross basis (i.e. "repledged securities" and "resold securities"are no longer added).ARB 198 / A5-9KPMG Illustrative consolidated financial statements note 12.6.2 Presentation of collateral for loans / receivables and off-balance-sheettransactions, as well as impaired loans / receivables [ARB Table 2]This note replaces the former table B in FINMA Circ. 08/02. The breakdown of loans / receivables presentsthe situation before netting with value adjustments. The total loans reported at the bottom of the tabledisclose the situation before and after netting with value adjustments.KPMG Illustrative consolidated financial statements note 2Illustrative Consolidated Financial Statements 7ARB 199 /A5-10 to A5-16
2.6.3 Breakdown of trading portfolios and other financial instruments at fairvalue (assets and liabilities) [ARB Table 3]This note replaces the former table C in FINMA Circ. 08/02. In order to reflect the new categories offinancial instruments to be disclosed in the balance sheet, the category "Other financial instruments atfair value" is disclosed separately on both the asset and liability side. A breakdown of the trading portfolioon the liability side must also be presented.ARB 200 /A5-17KPMG Illustrative consolidated financial statements note 32.6.4 Presentation of derivative financial instruments (assets and liabilities)[ARB Table 4]This note replaces the former table L in FINMA Circ. 08/02. Additional disclosures are to be reported atthe bottom of the table. These include the amount of derivative financial instruments determined using avaluation model as well as a breakdown of derivative replacement values by counterparty.ARB 201 /A5-18 to A5-29KPMG Illustrative consolidated financial statements note 42.6.5Breakdown of financial investments [ARB Table 5]This note replaces the former table C in FINMA Circ. 08/02. For debt securities, a breakdown of counterparties by rating is to be presented. This information must only be disclosed if the holdings of debtsecurities are material. The rating agency used for the ratings is to be mentioned.ARB 202 /A5-30KPMG Illustrative consolidated financial statements note 52.6.6Presentation of non-consolidated participations [ARB Table 6]This note replaces the former table D in FINMA Circ. 08/02. In the consolidated financial statements,participations are presented using the equity method. Participations are to be presented broken down by"with market value" and "without market value".ARB 203 /Where a financial group prepares and publishes consolidated financial statements and a group managementreport, the banks consolidated in the group are exempted from disclosing this note in their single-entityfinancial statements. This exemption does not apply to listed banks.ARB 327 /A5-31 to A5-33328 / 341KPMG Illustrative consolidated financial statements note 62.6.7 Disclosure of companies in which the Group holds a permanent direct orindirect significant participation [ARB Table 7]This note complements the note "Presentation of non-consolidated participations" (refer to 2.6.6).Significant participations are to be disclosed. It must be explained which participations are consolidated,disclosing the consolidation method used. Participations that are not consolidated because they wereacquired without strategic intent are to be disclosed separately. Reasons must be given for the decisionto waive consolidation, with disclosures that enable the reader to assess the significance of the participation. Any contractual ties must be disclosed.Illustrative Consolidated Financial Statements 8ARB 204 /A5-34 to A5-37
Where a financial group prepares and publishes consolidated financial statements and a group management report, the banks consolidated in the group are exempted from disclosing this note in theirsingle-entity financial statements. This exemption does not apply to listed banks.ARB 327 /329 / 341KPMG Illustrative consolidated financial statements note 72.6.8Presentation of tangible fixed assets [ARB Table 8]This note replaces the former table M in FINMA Circ. 08/02. A new item "Proprietary or separatelyacquired software" has been included and tangible assets acquired under finance leases now have to bebroken down according to different categories. In the consolidated financial statements, the impact ofany changes in the scope of consolidation has to be disclosed in a separate column. In addition, the bankhas to disclose the total amount of non-recognized lease commitments (operating leases), includingtheir maturity structure, with separate disclosure of the obligations that can be terminated within oneyear. Where tangible fixed assets are immaterial or where their book value is less than 10 million Swissfrancs, the breakdown may be limited to the gross additions and disposals and depreciation for thecurrent year.ARB 205 /Where a financial group prepares and publishes consolidated financial statements and a group management report, the banks consolidated in the group are exempted from disclosing this note in theirsingle-entity financial statements. This exemption does not apply to listed banks.ARB 327 /A5-38 to A5-43330 / 341KPMG Illustrative consolidated financial statements note 82.6.9Presentation of intangible assets [ARB Table 9]This note relates to the item "Intangible assets" that has to be disclosed separately on the balance sheet.In consolidated financial statements, the impact of any changes in the scope of the consolidation has tobe disclosed in a separate column. Where intangible assets are immaterial or where their book value isless than 10 million Swiss francs, the breakdown may be limited to the gross additions and disposals anddepreciation for the current year.ARB 206 /Where a financial group prepares and publishes consolidated financial statements and a group management report, the banks consolidated within the group are exempted from disclosing this note in theirsingle-entity financial statements. This exemption does not apply to listed banks.ARB 327 /A5-44 to A5-47331 / 341KPMG Illustrative consolidated financial statements note 92.6.10 Breakdown of other assets and other liabilities [ARB Table 10]Banks were already required to present the composition of other assets and liabilities in the notes asper margin nos. 63 and 76 of FINMA Circ. 08/02. However, the new table presents a breakdown of otherassets and other liabilities with a list of sub-items representing the mandatory minimum content. Anyother material sub-items are to be added.KPMG Illustrative consolidated financial statements note 10Illustrative Consolidated Financial Statements 9ARB 207 /A5-48
2.6.11 Disclosure of assets pledged or assigned to secure own commitmentsand of assets under reservation of ownership [ARB Table 11]This note replaces the former table O in FINMA Circ. 08/02. It remains similar in terms of content andpresentation.ARB 208 /A5-49KPMG Illustrative consolidated financial statements note 112.6.12 Disclosure of liabilities relating to own pension schemes, and numberand nature of equity instruments of the Group held by own pensionschemes [ARB Table 12]This note replaces the former requirements "Disclosure of
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