Auditing and Assurance Standards and Guidance

FRC Practice Notes

PN 19 (Revised) The audit of banks and building societies in the United Kingdom (March 2011)

Legislative and regulatory framework

Financial statements

7.

The form and content of the financial statements of UK banks prepared under UK GAAP is governed by the CA2006, Statements of Standard Accounting Practice ('SSAPs'), Financial Reporting Standards ('FRSs') and Urgent Issues Task Force ('UITF') Abstracts. The prescribed format for a UK banks' financial statements that comply with UK GAAP is set out in the Companies and Groups Accounts Regulations 2008 made under Part 15 CA2006. However, listed UK groups (including listed UK banking groups) must prepare consolidated financial statements in accordance with those International Financial Reporting Standards adopted by the European Union (EU IFRSs)11 and those parts of CA2006 applicable to companies reporting under EU IFRSs. UK companies or non listed groups, including UK banks and banking groups, are permitted to adopt voluntarily EU IFRSs for their financial statements.

8.

The form and content of a building society's financial statements prepared under UK GAAP are prescribed in the BS Accounts Regulations 1998 made under s72C BS Act 1986. These are similar to the Companies and Groups Accounts Regulations 2008 applicable to UK banks. As for UK banks, building societies apply FRSs, SSAPs and UITF abstracts when reporting under UK GAAP. Building societies with listed securities, including permanent interest-bearing shares, are also required to apply EU IFRSs in their consolidated financial statements. Like UK companies, building societies may also voluntarily adopt EU IFRSs for their entity financial statements.

9.	In addition to financial statements and a directors' report, building societies are also required, by BS Act 1986, to prepare:

an annual business statement – part of the annual report (s74 BS Act 1986); and

a summary financial statement (s76 BS Act 1986).

10.

The Accounting Standards Board ('ASB') has stated that it intends ultimately to converge UK GAAP with IFRS. Current ASB proposals envisage a differential reporting regime based on public accountability. This will result in all UK banks and building societies having to apply EU IFRS. However these proposals have yet to be finalised and the timetable for this has yet to be determined. In the meantime, UK Accounting Standards covering financial instruments that are consistent with IFRS12 have been issued but are subject to complex rules as to which entities they apply to and when. As the activities of UK banks and building societies largely comprise financial instruments the auditor considers carefully which of the various accounting standards and BBA SORPs13 apply to the entity being audited.

11.

The British Bankers Association has published a voluntary Code for Financial Reporting Disclosures (the BBA Code). This sets out key principles for disclosure and also establishes a process for banks to consider areas of topical interest that may have an impact on financial reporting disclosures and how to enhance the ability to make comparisons across the banking sector. Each bank subscribing to the BBA Code states as such in its annual report. Auditors need to be alert to any disclosures that will follow from the BBA Code each year.

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