Autumn
2006 Training Course/Seminar Series
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Accounting Standards And Financial Reporting For Central Banks
4-day intensive residential programme, 12 - 15 September
2006
Venue: King’s College, Cambridge University
Series Adviser: Charles Goodhart, CBE,
Professor Emeritus, London School of Economics,
Financial Markets Group
Details of how to register
are here
ACCOUNTING STANDARDS AND FINANCIAL REPORTING FOR CENTRAL BANKS
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 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. The must grapple with the challenge of new risk measurement and management techniques. 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 illustrate how leading central banks have in fact approached the main technical issues. Presenters include: Kenneth Sullivan (a senior adviser with the IMF, former CFO of the Reserve Bank of New Zealand and one of the foremost authorities on central bank financial reporting); Hennie van Greuning from the World Bank (and formerly a partner with Deloitte and Touche and financial controller of the South African Reserve Bank); PricewaterhouseCoopers’ lead central banking partner, Jeremy Foster; and the head of financial reporting at the European Central Bank, Niall Merriman.
The course is structured as follows:
Day 1: Choice of accounting and reporting framework;
Day 2: Policy implications and additional disclosures;
Day 3: Risk management and central bank finance;
Day 4: Capital maintenance, technology and internal controls.
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 eighth year in which Central Banking Publications Ltd has hosted seminars at Cambridge, but the first year in which we are enjoying the hospitality of King’s College. Already, more than 1,000 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
Introduction
and group discussion led by
Kenneth
Sullivan
Senior Adviser, International Monetary Fund
What are the most pressing financial
reporting challenges facing central banks today? Implementing IFRS?
Introducing new systems? Maintaining capital strength in the face of
low interest rates? 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.
Comparing central bank financial reporting frameworks
Chris
Sermon
Senior Manager, Banking and
Capital Markets,
PricewaterhouseCoopers
The majority of central banks currently
prepare their financial statements under accounting policies which are
specific to themselves, whether set by law or determined by management.
Adoption of IFRS however presents its own difficulties: among them reporting
for unrealised gains on reserves, the valuation of government debt and
accounting for gold. What are the main options for central banks regarding
their choice of accounting framework? 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? What are the key changes in IFRS this year? What is coming in
the future?
Niall Merriman
Head of Financial Reporting and Policy, European Central Bank
Currently, the only international accounting standard specifically designed for central banks is the Eurosystem accounting rules 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. This session will examine changes to the Eurosystem rules in the last two years, and those anticipated in the near future.
Policy implications of accounting framework choices
Kenneth Sullivan
Senior Adviser, International Monetary Fund
The drive to upgrade central bank financial reporting is in part attributable to external factors such as the International Monetary Fund’s safeguards assessment programme, and the widespread adoption of International Financial Reporting Standards. Also, central banks are affected by the general tightening of corporate governance and financial reporting practice which is underway. 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 of some of the pressing choices they are now faced with.
Management commentary for central banks
Robin Darbyshire
Former Financial Accountant, Bank of England
Management commentary – information outside the financial statements designed to help outsiders understand an organisation’s business – is a key means for central banks to help account for their actions. The International Accounting Standards Board is currently considering a framework which would require commercial firms to produce such commentaries. For central banks these additional disclosures may be particularly appropriate: allowing the explanation of the unique features of the central bank’s role which drive business outcomes. However, no template exists for what a central bank’s management commentary should be, and few central banks currently produce them. This session explores whether and how central banks can use management commentary to augment their disclosures.
Disclosures beyond the financial statements
Syndicate group discussions
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 (cash-flow 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.
Benchmarking
and reporting functional performance
Speaker from the Bank
of Canada
Risk management and central bank finance
Jeremy Foster
Partner, PricewaterhouseCoopers
The ongoing revolution in central bank risk management practice creates a series of challenges for CFOs within central banks. On the one hand they must agree a sensible delineation of responsibilities with their risk management teams, particularly as regards valuation methodologies, controls and compliance. On the other they face the challenge of reporting transparently information about risk exposures arising from increasingly complex central bank balance sheets. And then there is the new challenge of trying to measure and report non-financial risks. This session explores some of these important faultlines, with a view to the experiences of leading central banks.
Measuring and reporting operational risk
Hennie van Greuning
Senior Adviser, World Bank Treasury
Central banks’ diverse roles and functions make integrated operational risk management complex. Central banks must define operational risk and devise a working framework for its management. Also, they must address the cross-cutting nature of operational risk: in a typical setup this incorporates operational risk management at the business unit level, control self-assessment managed by internal audit and quantitative operational risk measurement by risk control. 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.
Measuring and reporting risk exposures
Kenneth Sullivan
Senior Adviser, International Monetary Fund
Developments in accounting standards are revolutionising the way risk is measured, monitored and reported. For central banks, especially those adopting fair-value-based accounting frameworks, this will mean profound changes. This session explores the implications for central banks in the moves towards increased disclosures of risk in published financial statements.
Financial
strength, capital maintenance and profitability
Friedrich Karrer
Director of Accounting, Oesterreichische Nationalbank
While central banks are facing
reduced earnings on both domestic and foreign portfolios, ministers of
finance still expect dividends. As financial buffers are used to cover
losses and where interest income is low, central banks may find they have
limited ability to create risk provisions. And 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.
Maximising the value of the internal
controls framework
Gregory L. Evans
Assistant Director, Division
of Reserve Bank Operations and
Payment Systems, Federal Reserve Board (invited)
The need to comply with new corporate-governance
legislation (such as the Sarbanes/Oxley rules in the US) has revolutionised
private-sector internals controls. Increasingly, central banks are asking
themselves whether they should submit to the same standards that, for
instance, the banks they supervise may be obliged to meet. Undoubtedly,
the process of attesting to the existence and robustness of internal controls
is expensive and time-consuming. How have central banks choosing this
path fared? This session draws on the experience of the US Federal Reserve’s
implementation of control attestations, and examines how central banks
can benefit from the process once the initial "documentation investment"
has been made.
IT for central bank finance
Tuula Colliander
Head of Division, Administration
Department, Bank of Finland (invited)
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.
Course summary and conclusions
Led by Kenneth
Sullivan
Senior Adviser, International
Monetary Fund
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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