2005 Training Courses/Seminar Series

IFRS accounting issues for central banks
Chris Sermon
Senior Manager, Banking and Capital Markets,
PricewaterhouseCoopers

Increasingly central banks are moving from their current practice of preparing their financial statements under accounting policies which are specific to themselves, whether set by law, or determined by management, to adopt IFRS. This presents its own difficulties: among them reporting for unrealised gains on reserves, the valuation of government debt and accounting for gold. What are the operational and implementation issues they must consider? How can standards like IFRS be implemented in a way that takes account of the special circumstances of central banks?

Policy implications of accounting framework choices
Kenneth Sullivan
International Monetary Fund

The revolution in central bank financial reporting is driven by the need for greater transparency to support central bank independence. Central banks are affected by the general tightening of corporate governance and financial reporting practice which has followed recent private-sector financial scandals. The result is an unprecedented focus on how central banks undertake their financial reporting. This session considers the far-reaching policy implications for central banks in emerging markets as well as developed countries arising from the adoption of more transparent reporting frameworks.

Eurosystem accounting rules: current practice and future developments
Niall Merriman
Head of Financial Reporting and Policy, ECB

Currently, the only accounting framework specifically designed for central banks is the eurosystem’s accounting guidelines designed to allow central banks joining the euro to report according to a common framework. With the accession of new countries to the European Union these accounting rules are becoming a de facto standard for European central banks. This session examines the ECB’s accounting framework, and the implications for stakeholders of the asymmetric treatment of unrealised losses and profits. Future financial reporting challenges for eurosystem central banks are also considered.

Internal controls and operational risk
Hennie van Greuning
Senior Advisor - Treasury, World Bank

The radical overhaul of internal control frameworks in the commercial sector (Sarbanes-Oxley etc) has prompted many central banks to re-examine their approach to internal controls. Although applying new and higher standards is costly, there are advantages too. This session examines what is now regarded as best practice for central bank internal controls and the management of operational risk. The role of internal auditors is crucial, and the speaker will explore how they can help to make operational risk control effective.



Autumn 2005 Training Courses/Seminar Series

	Accounting Standards, Financial Reporting and Financial Strength for Central Banks 4-day intensive residential programme, 4 September - 8 September 2005 Venue: Christ's College, Cambridge Course Director: Kenneth Sullivan, International Monetary Fund Series Adviser: Charles Goodhart, CBE, Professor Emeritus, London School of Economics, Financial Markets Group

	Dear Delegate, ACCOUNTING STANDARDS AND FINANCIAL REPORTING FOR CENTRAL BANKS In 2005 central banks face unprecedented pressures to upgrade and strengthen financial reporting arrangements. In North America, Sarbanes/Oxley-style internal-controls attestations are now being adopted by the Fed and Bank of Canada. Elsewhere the acceptance of International Financial Reporting Standards (IFRS) as a de facto global standard creates a new and higher benchmark for central banks to aim at. Meeting these higher standards poses a complex set of questions. Central banks must meet required levels of accountability and transparency without compromising financial and operational independence. They must adopt credible financial reporting standards that nonetheless take into account the unique risks and responsibilities associated with their role as national monetary authorities. In particular, central banks face tough choices over which accounting standard to adopt, how far they should try to follow commercial standards for financial reporting, governance and internal controls, and the precise profit recognition and distribution arrangements they settle on. Management reporting and performance measurement remain challenging areas for many central banks. This course is designed to equip senior staff in charge of the financial reporting function to tackle these challenges. Case studies from expert presenters and delegates will illustrate how leading central banks have in fact approached the main technical issues. The course follows a logical structure. Each day the group will address one of the key themes in this area: Day 1: Choice of accounting and reporting framework; Day 2: Governance, internal controls and operational risk; Day 3: Measuring and communicating performance, reporting to stakeholders; Day 4: Capital maintenance. By examining how leading institutions are planning to manage these changes and upheavals, this course will increase participants' ability to deliver appropriate solutions in a difficult environment for their particular institution. The roundtable format allows the international group of delegates to learn from each other, and from the unrivalled expertise of an elite panel of speakers comprising leading central bankers, academics and practitioners. All discussions are held in restricted groups to encourage lively and informal debate. This is the seventh year in which Central Banking Publications Ltd has hosted a seminar series at Christ’s College, Cambridge. Already, more than 900 central bankers and supervisors from over 95 countries have benefited from attending. We look forward to welcoming you to Cambridge. Yours sincerely, William Clarke, CBE, PhD Chairman, Central Banking Publications Ltd

	Sunday 4th SEPTEMBER
	Reception Drinks and Welcoming Dinner

	Monday 5th SEPTEMBER
	RETHINKING CENTRAL BANK FINANCIAL REPORTING

	Chairman’s introduction Kenneth Sullivan International Monetary Fund IFRS accounting issues for central banks Chris Sermon Senior Manager, Banking and Capital Markets, PricewaterhouseCoopers Increasingly central banks are moving from their current practice of preparing their financial statements under accounting policies which are specific to themselves, whether set by law, or determined by management, to adopt IFRS. This presents its own difficulties: among them reporting for unrealised gains on reserves, the valuation of government debt and accounting for gold. What are the operational and implementation issues they must consider? How can standards like IFRS be implemented in a way that takes account of the special circumstances of central banks? Policy implications of accounting framework choices Kenneth Sullivan International Monetary Fund The revolution in central bank financial reporting is driven by the need for greater transparency to support central bank independence. Central banks are affected by the general tightening of corporate governance and financial reporting practice which has followed recent private-sector financial scandals. The result is an unprecedented focus on how central banks undertake their financial reporting. This session considers the far-reaching policy implications for central banks in emerging markets as well as developed countries arising from the adoption of more transparent reporting frameworks. Eurosystem accounting rules: current practice and future developments Niall Merriman Head of Financial Reporting and Policy, ECB Currently, the only accounting framework specifically designed for central banks is the eurosystem’s accounting guidelines designed to allow central banks joining the euro to report according to a common framework. With the accession of new countries to the European Union these accounting rules are becoming a de facto standard for European central banks. This session examines the ECB’s accounting framework, and the implications for stakeholders of the asymmetric treatment of unrealised losses and profits. Future financial reporting challenges for eurosystem central banks are also considered. Internal controls and operational risk Hennie van Greuning Senior Advisor - Treasury, World Bank The radical overhaul of internal control frameworks in the commercial sector (Sarbanes-Oxley etc) has prompted many central banks to re-examine their approach to internal controls. Although applying new and higher standards is costly, there are advantages too. This session examines what is now regarded as best practice for central bank internal controls and the management of operational risk. The role of internal auditors is crucial, and the speaker will explore how they can help to make operational risk control effective.

	Tuesday 6th SEPTEMBER
	GOVERNANCE AND INTERNAL CONTROLS

	Key financial reporting challenges Roundtable group discussion What are the most pressing financial reporting challenges facing central banks today? Implementing IFRS? Maintaining capital strength in the face of low interest rates and a falling dollar? Or adopting more stringent internal controls frameworks to keep pace with new private sector standards? This session will draw on the experiences of participants to identify those issues which are most challenging and look for points of common interest for discussion throughout the week. Central bank governance: a survey of boards and management Tonny Lybeck Senior Economist, Monetary and Financial Systems Department, International Monetary Fund Accountability, autonomy and transparency are now regarded as best practice for central banks. There is less agreement on how to achieve this though, and the governance structures of central banks vary considerably. The speaker will draw on a comprehensive recent IMF survey which throws light on recent trends in the organisation of central bank governance and management structures, and the conclusions on what might constitute best practice in this field. IMF safeguards assessments George Kabwe International Monetary Fund In 2000, following cases of alleged misuse of IMF resources, the Fund introduced an assessment programme to verify that central bank borrowers had robust control, accounting, reporting and auditing systems. Since 2002 this has become a permanent programme, with IMF assessors visiting borrower-country central banks to ensure the adequacy of their financial reporting and control systems. This process has become one of the key drivers of change in central bank financial reporting. This session examines how assessments work, and the lessons learned from on-site visits to over 50 central banks. The future direction and priorities for the programme will also be considered. Central bank cooperation in accounting system development Olivier Morelle Senior Expert, European Central Bank Among the most challenging technical issues for central bank finance departments is the choice and implementation of IT accounting systems. Accounting for complex balance sheets is impossible without specialised software, however the operational risks associated with such complex IT projects are high. One solution is for central banks to cooperate with vendors and each other to develop a central-bank-specific accounting system, and this option holds out the hope of lower costs, and a tried and tested solution. This session explores some of the key issues in systems choice for central bank finance. Internal and external audit, and finance Kenneth Yam Manager, Banking and Capital Markets, PricewaterhouseCoopers Successful financial management requires above all that the finance department, and internal and external auditors understand their respective roles. For many central banks however, this set of relationships is changing as they institute new internal control frameworks. Similarly, as the majority of central banks are now subject to external audit this new relationship must be integrated into the evolving governance structure, that includes the adoption of audit committees. This session will draw on the practical experience of participants to examine how these structural changes can be managed to allow these functions to work together effectively.

	Wednesday 7th SEPTEMBER
	MEASURING AND COMMUNICATING PERFORMANCE

	Measuring financial performance/benchmarking Mark Robson Treasurer, Lady Margaret Hall, Oxford University As for all businesses, central banks cannot be managed efficiently and effectively unless management has access to accurate and comprehensive information about operational and financial performance. In areas where central banks have no private-sector counterparts, benchmarking and comparison can be conceptually difficult. As central bank finances tighten however, efficiency concerns are coming to the fore. This session draws on the experience of participating central banks to examine how appropriate management accounting techniques, like activity-based-costing, can be established in the central banking context. Reporting to stakeholders Robin Darbyshire Bank of England Operational independence has exposed central bank finances to greatly increased scrutiny. The central bank’s performance may be discussed in parliaments, or senior policymakers called to testify before parliamentary committees. Politicians may choose to focus on central bank finances rather than performance against core mandates. It is doubly important therefore for central banks to think carefully about disclosures to government shareholders, parliaments and the public. A proactive approach to transparency can be effective in pre-empting criticism. This session explores these issues from the perspective of the Bank of England. Disclosures beyond the financial statements Kenneth Sullivan International Monetary Fund Moves by many central banks to adopt more robust accounting frameworks, such as IFRS, are not the end of the journey as far as financial transparency goes. While some required disclosures (cashflow statements for instance) are clearly of limited use in the central banking context, other crucial information – concerning perhaps stewardship of foreign reserves – is not covered in commercial-sector disclosure templates. Meaningful financial transparency requires disclosures beyond the mandated financial statements. This session considers evolving notions of best practice in this area.

	Thursday 8th SEPTEMBER

	FUTURE CHALLENGES

	Financial strength, capital maintenance and profitability Kenneth Sullivan International Monetary Fund Robin Darbyshire Bank of England As central banks adapt to the current combination of low interest rates and weak US dollar, many are facing sharply reduced earnings and capital erosion. Despite statutory independence, in practice many central banks face some or substantial pressure from their ministers of finance to pay out as much dividend as possible, which limits their ability to create risk provisions. While central banks can and do function with negative net worth, this can undermine financial independence and threaten monetary policy goals. This session explores how central banks can best create and maintain adequate financial buffers in their balance sheets along with provisions for recapitalisation. Course summary and conclusions In the final group workshop the course chairman and participants will revisit the issues covered during the course, and draw out the lessons and conclusions from discussions. Delegates will be invited to reflect on what they have learned and how they can draw on their experiences to initiate debate and promote high standards in their home institutions.



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