Topics: Subsidiary, Associate company, Minority interest Pages: 9 (2844 words) Published: July 21, 2013
The observance of international accounting standards is playing an increasingly significant role in dynamic regulatory developments and presents several challenges, which may necessitate a variety of procedural and technical data processing changes.

Regulatory consolidation under the influence of international accounting standards

The observance of international accounting standards is playing an increasingly significant role in dynamic regulatory developments. On the one hand, publicly listed parent institutions must conform to the new requirement for a financial data report based on an IFRS balance sheet (Financial Reporting, FINREP). This financial data report should be implemented by 1 January 2013 in accordance with the provisions of the new EU CRR Regulation. On the other hand, as part of the implementation of the Banking and Credit Adequacy Directives1, § 10a (7) of the German Banking Act (KWG) obliges all parent institutions to use consolidated accounts as the basis for determining their own funds and risk exposure for the purpose of solvency reporting (Common Reporting Framework, COREP)2. Current legislation requires groups of institutions to create both the FINREP and COREP reports with the regulatory consolidation group set out as per §10a of the KWG. As well as the problem of differing consolidation groups between the IFRS and the KWG, consideration should also be given to the different consolidation techniques used in the conversion of group institution reports based on IFRS-consolidated accounts. What follows is an overview of the differences between groups of consolidated companies under regulatory provisions and commercial law. As the consolidation group outlined in the German Commercial Code (HGB) largely matches that outlined by the IFRS in the wake of the changes made to the HGB in the German Accounting Law Modernisation Act (BilMoG), the provisions below will only be considered in further detail in accordance with the IFRS. This will illustrate deviations from provisions set out in the KWG. Consolidation methods will then be briefly presented. Finally there will be a short summary of the article.

Differences in the definition of the consolidated group
The authority of the regulatory consolidation group to determine own funds and risk exposure (and also for the creation of FINREP reports) is enshrined in §10a (1-5) of the KWG. In reconciling the IFRS consolidation group to the regulatory consolidation group, particular consideration must be given to the differences that exist between the


Law for the Implementation of the Revised Banking and Capital Adequacy Directives of 17 November 2006, Federal Law Gazette (BGBL) I 2006. The current draft version of the KWG provides transitional provisions that necessitate the use of IFRS accounting standards as a consolidated reporting basis before the end of 2013. See Articles: ‘Erhöhte Anforderungen an die Systeme und Datenhaltung durch IFRS Bewertung im Meldewesen’ and ‘Basel III und die europäische Umsetzung - Schaffung eines Single-Rule-Book’.


consolidated companies as well as the consolidation methods that are necessitated by these regulatory requirements. Non-compliant IFRS consolidation groups must adapt the following points to comply with regulatory reporting provisions: Deconsolidation of companies that belong to the IFRS consolidation group but that are not part of the regulatory consolidation group as per the KWG. At present, this primarily includes all companies that do not belong to the banking and investment services sectors3. Add companies that are not consolidated under the IFRS but that represent subordinate companies as per the KWG4 (including companies that have voluntarily become proportionately consolidated as per §10a (5) of the KWG). As per §10a (1) of the KWG, a group of institutions consists of a single superordinate and multiple subordinate companies. The superordinate company (parent institution) is an...
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