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30 January 2014

FEE: ECB comprehensive assessment of 124 European banks - Possible consequences for the accountancy profession

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FEE issued a letter to the ECB which recommended that the ECB address certain issues before executing the ECB Comprehensive Assessment.

The single supervisory mechanism will represent a major change in the role of the ECB and in the regulatory framework for banks in the eurozone. The comprehensive assessment represents a critical step towards the ECB’s assumption of this new role as a prudential supervisor. FEE fully supports the main objectives of the ECB’s comprehensive assessment, as stated in the ECB’s announcement of 23 October 2013, i.e. transparency (enhancing the quality of information available concerning the condition of banks); repair (identifying and implementing necessary corrective actions, if and where needed); and confidence building (namely assuring all stakeholders that banks are fundamentally sound and trustworthy). Attaining these objectives would improve financial stability within the EU and strengthen the ability of the banking sector to provide credit and liquidity to European businesses and households and support growth in the European economy.

As the ECB works towards finalising and publishing the methodologies underlying the comprehensive assessment, FEE recommends that it expeditiously and publicly clarifies the following three issues:

  • That it does not intend to require banks to revise financial information that is fairly presented in accordance with IFRS, as adopted in the EU, or amend reasonable judgements made in the application of IFRS;
  • Limited cases, where the accounting policies are not able to serve the prudential principles, if any, and defines objective prudential filters to be applied to reconcile the general financial reporting and prudential reporting mission; and
  • The methodology and benchmarks that will be incorporated in its stress tests.

The analysis performed by asset quality reviewers working on behalf of the ECB may however provide valuable alternative insights and perspectives on the data, estimates and judgements used by management in preparing IFRS information. Also, although the findings of asset quality reviewers may not be relevant to IFRS measurements, these will provide an input into the stress tests that may affect management’s going concern assessments and disclosures. As the asset quality review is unlikely to be complete before most banks publish their December 2013 financial statements, FEE recommends that the ECB encourages early and ongoing communication between asset quality reviewers, bank managements and auditors so that management and auditors can assess issues and findings that may be relevant to the financial statements as soon as possible.

More generally, FEE believes that regular dialogue, also at a European level, between banking associations, prudential supervisors, securities market regulators and auditors about reporting and risk issues can be valuable in improving the quality of financial reporting and auditing and effective prudential supervision.

Letter to the ECB


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