LAYOUTS FOR THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AND INSTRUCTIONS FOR COMPLETION

Transcription

1 REGULATION No. 106.l 1 (47) LAYOUTS FOR THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AND INSTRUCTIONS FOR COMPLETION The profit and loss account should be drawn up according to the following layout: PROFIT AND LOSS ACCOUNT 1. Interest income 2. Net income from leasing operations 3. Interest expenses 4. NET INCOME FROM FINANCIAL OPERATIONS 5. Income from equity investments (a) Group undertakings (b) Participating interests (c) Other undertakings 6. Commission income 7. Commission expenses 8. Net income from securities transactions and foreign exchange dealing (a) Net income from securities transactions (b) Net income from foreign exchange dealing 9. Other operating income 10. Administrative expenses (a) Staff costs (aa) Salaries and fees (ab) Staff-related costs (aba) Pension costs (abb) Other staff-related costs (b) Other administrative expenses 11. Depreciation and write-downs on tangible and intangible assets 12. Other operating expenses 13. Loan and guarantee losses 14. Write-downs on securities held as financial fixed assets 15. NET OPERATING PROFIT OR LOSS 16. Extraordinary items (a) Extraordinary income (b) Extraordinary expenses 17. PROFIT / LOSS BEFORE APPROPRIATIONS AND TAXES 18. Appropriations 19. Income taxes 20. Other direct taxes 21. PROFIT OR LOSS FOR THE FINANCIAL YEAR

2 2 (47) Taxes attributable to extraordinary items may be separated from income taxes and entered as a separate item after extraordinary expenses. In that case, the title of item 17 of the profit and loss account should read PROFIT OR LOSS AFTER EXTRAORDINARY ITEMS. Taxes must be broken down in the above manner if the difference between extraordinary expenses and extraordinary income is material. The balance sheet should be drawn up according to the following layout: BALANCE SHEET ASSETS 1. Liquid assets 2. Debt securities eligible for refinancing with central banks 3. Claims on credit institutions (a) Repayable on demand (b) Other 4. Claims on the public and public sector entities 5. Leasing assets 6. Debt securities (a) On public sector entities (b) Other 7. Shares and participations 8. Participating interests 9. Shares and participations in group undertakings 10. Intangible assets 11. Tangible assets (a) Real estate and shares and participations in real estate corporations (b) Other tangible assets 12. Claims in respect of share, investment share capital and original fund issues 13. Own retained shares and participations 14. Other assets 15. Accrued income and prepayments LIABILITIES A. LIABILITIES 1. Liabilities to credit institutions and central banks (a) Central banks (b) Credit institutions (ba) Repayable on demand (bb) Other 2. Liabilities to the public and public sector entities (a) Deposits (aa) Repayable on demand (ab) Other (b) Other liabilities

3 3 (47) 3. Debt securities issued to the public (a) Bonds (b) Other 4. Other liabilities 5. Accrued expenses and deferred income 6. Compulsory provisions (a) Pension provisions (b) Provisions for taxes (c) Other compulsory provisions 7. Subordinated liabilities B. APPROPRIATIONS 8. Depreciation difference 9. Voluntary provisions C. EQUITY CAPITAL 10. Share capital/cooperative capital/basic capital 11. Investment share capital/original fund/additional capital 12. Share premium account 13. Revaluation reserve 14. Other restricted reserves (a) Reserve fund (b) Reserves provided for by the articles of association (c) Other reserves 15. Capital loans 16. Non-restricted reserves (a) Reserve for own retained shares and participations (b) Other reserves 17. Profit or loss brought forward 18. Profit or loss for the financial year OFF-BALANCE SHEET COMMITMENTS 1. Commitments given to a third party on behalf of a customer (a) Guarantees and pledges (b) Other 2. Irrevocable commitments given in favour of a customer (a) Securities repurchase commitments (b) Other

4 4 (47) INSTRUCTIONS FOR THE COMPLETION OF THE PROFIT AND LOSS ACCOUNT Interest income Enter under interest income all interest and interest subsidies, penalty interest, and commissions for loan arrangement and other commissions calculated on a time basis or by reference to the amount of the principal. The proportion of fees received on loans granted and accrued for the financial year is also entered as interest income provided the fees are not compensation for direct administrative expenses related to the granting of the loan. Fees similar in nature to interest are spread over the maturity of the loan as interest income. The difference between the selling price and the lower book value of claims entered in the balance sheet under Claims on credit institutions and Claims on the public and public sector entities is also entered as interest income. The difference between the book value and the lower selling price is entered as a deduction in interest income when a loan is assigned. Income similar in nature to interest from the financing of hire purchase contracts, factoring and accounts payable financing and other such financing is also entered here. Accrued interest claims written off on the basis of the insolvency of a customer are entered as a deduction in interest income. Unpaid interest on claims whose principal has been recorded as non-performing in accordance with Regulation must not be entered as income for the financial year unless the claim is on a public sector entity or a public sector entity has issued a commitment as security for the claim. Unpaid interest entered as interest income on such claims during the financial year must be deducted from interest income in the annual accounts at the latest. Claims acquired at below or above nominal value If, at the time of acquisition, the amount paid for a loan or debt security was above or below the nominal value (eg zero-interest loans), the proportion for the financial year of the difference between the nominal value and the purchase price is spread over the financial year as interest income or as a deduction in interest income if it is material. A counteritem is entered as an increase or decrease in the book value of the claim.

5 5 (47) Sale and repurchase agreements (repos) The difference between the resale price and purchase price of securities or other assets bought under repos imposing obligations on the credit institution and its contracting party is entered as interest income and accrued income during the validity of the agreement. If the credit institution or its contracting party is merely entitled, but not obliged, to sell back the security or the asset, the difference is not entered under interest income. Interest rate and currency swap agreements The difference between annual interest received and paid under interest rate and currency swap agreements entered into for the purpose of hedging claims and debt securities held as financial fixed assets is entered in the annual accounts as interest income or an adjustment item thereto for the financial year it accrues. Forward rate agreements, interest rate futures, interest rate options and forward exchange contracts The proportion of income and expenses for the financial year arising from interest rate derivative contracts and forward exchange contracts entered into for the purpose of hedging claims other than debt securities held as current assets is entered as interest income or an adjustment item thereto. Net income from leasing This item includes rents from leasing contracts less planned depreciation in respect of leasing assets. The item also includes additional depreciation in respect of leasing assets and capital gains and losses from the sale of leasing assets, fees charged to customers and other direct income and expenses arising from leasing contracts. Other income and expenses arising from leasing contracts are entered under the profit and loss account items that correspond to the nature of the income or expense items. Unpaid leasing rents must not be entered as income for the financial year, if the purchase price of the leasing asset is to be treated as non-performing in accordance with Regulation 105.8, unless the rent claim is on a public sector entity or secured by a commitment issued by a public sector entity. If such rents have been entered as income during the financial year, they must be deducted from net income from leasing at the latest in connection with the drawing up of the annual accounts. Interest expenses Interest expenses comprise all interest, penalty interest, and commissions for loan arrangement and other commissions calculated on a time basis or by reference to the amount of principal. The proportion of issue losses for the financial year arising in connection with the issue of loans and the proportion of fees for the financial year paid on loans received

6 6 (47) are shown under interest expenses, provided they are not compensation for direct administrative expenses related to the granting of the loan. The interest on perpetuals is entered as an expense for the financial year during which it was accrued, regardless of whether interest payments can be postponed under the loan terms because of lack of funds distributable as dividends or for some other such reason. The proportion for the financial year of the issue premium on loans issued is entered as a deduction in interest expenses. Issue losses and premiums and fees similar in nature to interest are spread over the maturity of the loan as interest expenses. The difference between the redemption price and book value of own debt obligations redeemed by the credit institution before the due date is entered under interest expenses or as a deduction therein. However, the difference between the redemption price and book value of such own debt obligations as have passed into the ownership of the credit institution incidentally in connection with trading, must be entered under the profit and loss account item Net income from securities transactions. Contributions paid to the deposit guarantee fund are also entered as interest expenses. Liabilities acquired at below or above nominal value If the amount received when a liability was acquired is more or less than the nominal value (eg zero-interest loans), the difference between the nominal value and the sum received when the liability was acquired is spread over the maturity period as interest expenses or a deduction therein, if it is material. A counteritem is entered as an increase or a decrease in the book value of the liability. Indexed liabilities The difference, repayable at maturity, between the value of an indexed liability according to a changed bench mark and its lower nominal value must be spread over the maturity period as interest expenses. Interest payable on a capital loan (capital investment) Interest payable on a capital loan (capital investment) is entered under the relevant item as an expense for the financial year during which it accrued. The counteritem is entered in accrued expenses.

7 7 (47) Sale and repurchase agreements (repos) The difference between the repurchase and selling price of securities or other assets sold under repos imposing obligations on the credit institution and its contracting party is entered as interest expense. The difference is entered in interest expenses and accrued expenses during the maturity of the contract. The difference is not entered as interest expense if the credit institution or its contracting party is merely entitled, but not obliged, to buy or sell back the securities or assets. Interest rate and currency swap agreements The difference between annual interest received and paid under interest rate and currency swap agreements entered into for the purpose of hedging a liability is entered as interest expense or an adjustment thereto for the financial year during which it accrues. Forward rate agreements, interest rate futures, interest rate options and forward exchange contracts The proportion of expenses and income for the financial year arising from interest rate derivative contracts and forward exchange contracts entered into for the purpose of hedging liabilities is entered as interest expenses or an adjustment item thereto. Income from equity investments Enter under this item dividend income from shares, income from common fund units and other comparable income paid from the undertaking s distributable funds. Related corporate tax credit is entered according to the statement (1994/1269) issued by the Accounting Board. Commission income The item includes bank charges and commissions from granting loans, arranging financing for securities issues or other similar financing, guarantees and other off-balance sheet commitments, foreign exchange dealings, securities transactions, and provision of trustee services, payment services, securities lending and borrowing and other comparable services. Commissions from granting loans or arranging other similar financing are entered under this item only if they are compensation for direct administrative expenses arising from the granting of loans or other financing.

8 8 (47) Commission expenses This item includes commissions paid to third parties for rendering the services referred to in the previous item. Commissions from securities or real estate transactions can, however, be capitalized in the purchase price of the security or real estate concerned. Net income from securities transactions and foreign exchange dealing Net income from securities transactions Entries under this item consist of the positive or negative difference between the selling price and book value of debt securities, shares and participations which are held as current assets (gross profit). The difference between the selling price and book value is entered as income or a deduction in income when a security is transferred. A security is considered to have been transferred when the transaction has been concluded in a demonstrable and binding manner. The difference between the book value and market value of securities held for trading purposes on the balance sheet date is entered under this item as income or expense for the financial year. The difference between the book value and the lower market value of securities other than the securities held as current assets referred to above on the balance sheet date is entered as a deduction under this item. If, on the balance sheet date, the market value exceeds the book value, the difference between the market value and the book value is entered as an increase under this item up to the amount of the purchase price. If the securities have been sold before the accounting entity has acquired ownership of them, the difference between the probable purchase price on the balance sheet date and the lower selling price is entered as an expense for the financial year. The item also includes the income and expenses arising from forward rate agreements, interest rate futures, stock-related futures and option contracts and interest rate swaps entered into for the purpose of hedging securities referred to above and for nonhedging purposes. The amount arising from the difference in the net present values of interest streams arising from interest rate swap agreements entered into for the purpose of hedging debt securities which are held as current assets and for nonhedging purposes is booked as income or expense for the financial year and entered as an increase or decrease in the item. Net income from foreign exchange dealing The item includes the net income from foreign exchange dealing and gains and losses arising from translation into Finnish currency of assets, liabilities and the principal of

9 9 (47) currency swap agreements. The item also comprises the proportion of income for the financial year arising from the valuation of forward exchange contracts, currency futures and currency options. Other operating income Enter in this item gross rental income from real estate and gross dividend income and rental income from real estate corporations, capital gains on real estate and shares and participations in real estate corporations, commissions and fees paid by undertakings belonging to the same group or consolidation group for administrative and other comparable services, and other income from the credit institution's ordinary business not included in the items mentioned above. Administrative expenses Staff costs Salaries and fees Salaries and fees include wages, salaries and fees subject to withholding tax and paid during the financial year, together with holiday pay and holiday compensation, and compensation payable on account of dismissal. Staff-related costs Pension costs In addition to pensions and employment pension contributions paid, pension costs include the change in the uncovered pension liability calculated on an actuarial basis for the financial year. If the change in the uncovered pension liability is not paid to a pensions institution, the counterentry is made under Pension provisions in the balance sheet. Excess coverage of pension liability in a pension foundation or a pension fund (hereafter referred to jointly as pension foundation ) and an increase therein should not be entered in this item, nor entered otherwise as income, until the excess coverage has been refunded to the credit institution or until the credit institution has received notification from the pension foundation to the effect that the credit institution is entitled to a refund of its share in the excess coverage in the pension foundation on the basis of a decision made by the board of directors of the pension foundation and permission of the Ministry of Social Affairs and Health. Other staff-related costs The item includes social security contributions, national pension contributions and other similar statutory staff-related costs, with the exception of employment pension contributions.

10 10 (47) Other administrative expenses Other administrative expenses include meals, recreation and training costs, office costs and expenses arising from information technology, telecommunications, travel, marketing and other administrative expenses which are not staff costs. Depreciation and write-downs on tangible and intangible assets Depreciations entered here shall be broken down into two items: planned depreciation entered on a time basis and write-downs entered owing to a permanent decrease in market value. The purchase price of buildings and machinery and equipment is depreciated over the asset's useful life according to a depreciation plan, observing the general guidelines issued by the Accounting Board. If the value of a building has been raised in the accounts, the depreciation is made on the original purchase price. If the building's market value, or the market value of shares or participations in real estate corporations entered under the balance sheet item Tangible assets is permanently below the book value, the difference between the book value and the market value is depreciated during the financial year when the decrease in value is recognized. When the balance sheet value of real estate and shares and participations in real estate corporations in own use is defined, the valuation basis shall be the value of the asset in relation to the expected income from ordinary business activities. Any earlier revaluations of assets must be reversed separately as stated in Appendix III below. The proportion of the purchase price of land on which corresponding income is no longer expected is deducted from the purchase price of land. Intangible assets are depreciated according to a depreciation plan over their useful life. Goodwill is depreciated within five years or, if its useful life is longer, during this period, but within a maximum of 20 years. The depreciation plans on which depreciation is based and which indicate the type of asset involved, the account in which the depreciation is entered and the depreciation time must be appended to the balance sheet breakdowns. The general guideline of the Accounting Board should be applied in respect of depreciation made in excess of planned depreciation. Other operating expenses Enter in this item rental expenses, gross expenses arising from real estate and real estate corporations, including maintenance charges paid to them, capital losses arising from the sale of shares and participations in real estate and real estate corporations, insurance and other security expenses including contributions paid to security funds, supervision, inspection and membership fees, losses arising from crimes and other

11 11 (47) operating expenses pertaining to credit institution business which are not entered under other items. Loan and guarantee losses Actual loan losses and specific loan loss provisions included in the balance sheet items Claims on credit institutions and Claims on the public and public sector entities and those arising from off-balance sheet commitments are entered under this item. Losses attributable to debt securities are not entered here. Actual loan losses and specific loan loss provisions must be entered in the annual accounts as deductions from the corresponding balance sheet items. The amounts to be written off as actual loan losses according to Regulation must be entered under expense for the financial year, unless specific loan loss provisions have previously been made for them. A specific loan loss provision is made once it has become probable that no payment will be made on the principal of the claim. Consequently, a specific loan loss provision may be reversed in the annual accounts, if later it becomes probable that a payment will nevertheless be made on the principal of the claim. A specific loan loss reserve must be made at least when - the asset has been booked as non-performing on the balance sheet date, - the solvency of the debtor or guarantors is not expected to improve sufficiently within two years, and - the market value of the pledge given as collateral is not adequate to cover the amount of the principal of the claim. If an insurance indemnity or other such compensation is expected for the loan loss or it is probable that the sum can be collected from a guarantor or from collateral, the specific loan loss provision is entered in the annual accounts less the expected payment. Amounts collected or received in respect of claims that have previously been written off as actual loan losses and reversing entries in respect of specific loan loss provisions are entered under the item as a deduction. If, when assessing the amount of the specific loan loss provision, the payment expected from a debtor is not considered to cover the entire principal of the debt and the interest accrued on it, the expected payment is first taken into account as a deduction in accrued interest receivable entered in the books of account, and secondly

12 12 (47) as a repayment of principal in respect of the amount in excess of accrued interest receivable. If a claim of the credit institution that has arisen from the funding of a customer has been substituted by property, the difference between the purchase price of the property and its lower probable value at the balance sheet date together with any capital gain or loss arising from the sale of such property are entered under this item, unless the property has been transferred to be used in the credit institution's ordinary business. A decision in writing must be made specifying that the purpose of use of the property concerned has been changed. Loan losses arising from debt securities held as financial fixed assets are also entered under this item, when the debt securities have been subscribed or otherwise acquired in order to finance a customer in a manner comparable to lending. Losses arising from accrued income are not entered under this item. Amounts recovered in respect of claims that have been written off as actual loan losses and reversing entries in respect of specific loan loss provisions must, provided they are not insignificant, be entered as a separate item in the profit and loss account or shown in the notes to the profit and loss account and balance sheet. Write-downs on securities held as financial fixed assets If the market value of securities entered under the balance sheet item Shares and participations in group undertakings or Participating interests, or the market value of securities held as financial fixed assets entered under the balance sheet item Shares and participations or Debt securities, is permanently lower than their book value on the balance sheet date, the difference between the book value and the market value is entered as an expense under this item. If the above write-down made on a security proves unjustified, it must be reversed. Reversing entries must be made in an account of their own in the books of account and stated as a separate item in the profit and loss account if the amount is material. Extraordinary items Extraordinary items consist of income and expenses originating from non-recurring, material transactions that deviate from the ordinary business of the credit institution. Extraordinary items do not have any distinct connection with the day-to-day business of the credit institution, they cannot be expected to recur and their volume is material compared to the size of the credit institution.

13 13 (47) Appropriations Change in depreciation difference An increase or decrease in any accumulated depreciation difference is entered here. Change in fund for general banking risks The increase or decrease in the provision referred to in the balance sheet item Fund for general banking risks is entered here. Change in other voluntary provisions The increase or decrease in the provisions referred to in the balance sheet item Other voluntary provisions is entered here. Income taxes The taxes entered on a cash basis under the item Income taxes that have been levied as advance tax should be adjusted so that direct taxes are spread over the financial year according to the accruals convention. The supplementary tax is allocated to the financial year for which dividends are paid. Taxes cannot be entered directly against equity capital. Taxes which do not pertain to the financial year are entered on a line of their own, separate from the taxes for the financial year. Other direct taxes Direct taxes other than those entered under the item Income taxes are entered here.

14 14 (47) INSTRUCTIONS FOR THE COMPLETION OF THE BALANCE SHEET ASSETS Liquid assets This item comprises Finnish and foreign notes and coins, cheques and bankers' drafts and other similar payment instruments. This item comprises claims on central banks and post office banks operating at government liability and which are repayable on demand. The terms central bank and post office bank refer to the Bank of Finland and a foreign central or post office bank operating at government liability in a country where the credit institution has a branch. Claims on central banks with agreed maturity dates or periods of notice are entered under the item Claims on credit institutions. Debt securities eligible for refinancing with central banks This item comprises Treasury bills and other debt securities which the central bank approves as collateral for central bank refinancing other than intraday finance. Debt securities eligible for refinancing with central banks are entered under this item according to their nature, not according to whether the credit institution itself has access to central bank finance. General rules concerning claims Claims on credit institutions and claims on the public and public sector entities include claims based on debt instruments and deposits made in other credit institutions which are not included in the item Debt securities. This item also includes the purchase price of securities or other assets bought on resale terms imposing obligations on the credit institution and its contracting party. Claims of this kind are entered in the balance sheet according to the contracting party. If the credit institution or its contracting party is merely entitled, but not obliged, to buy or sell back the security or asset, the purchase price is not entered under claims. This item also includes claims arising from the financing of hire purchase contracts and factoring and from accounts payable financing and other such financing. The amount received at the time of purchase is entered as the principal amount of the claim.

15 15 (47) A claim is regarded as being repayable on demand if, under the contract terms, it can be called in immediately upon demand or after a maximum period of notice of one business day. Claims on credit institutions This item comprises claims on central banks other than those repayable on demand and loans and advances to credit institutions referred to in the Credit Institutions Act and comparable foreign credit institutions, plus deposits made in them. This item also includes claims on the security funds of deposit banks. Claims on the public and public sector entities This item comprises loans and advances to parties other than credit institutions and central banks and other similar claims. Leasing assets This item comprises the purchase price, less depreciation, of assets rented out under leasing contracts, and advance payments in respect of leasing assets. Debt securities General rules This item comprises bank (discount) certificates of deposit, commercial and local authority paper, Treasury bills, government bonds, debentures and other debt securities, deposit receipts, and other such negotiable bearer bonds and promissory notes made out to order and related matured and unmatured instalment coupons, with the exception of debt securities held as financial fixed assets that have been acquired for the purpose of financing a customer and that are comparable to direct lending. Bonds with equity warrants and convertible bonds are regarded as debt securities. If bonds with equity warrants have not been acquired separately from the warrants, the purchase price of the bond is the first market price quoted for the bond after it has been subscribed or otherwise acquired or, if this is not available, the net present value of the principal and interest stream from the loan amount discounted at the most closely applicable market interest rate. Debt securities acquired on resale terms imposing obligations on the credit institution and its contracting party are not entered in the balance sheet under the credit institution's assets. If the credit institution or its contracting party is merely entitled, but not obliged, to buy or sell back the debt security, it is, however, entered in the balance sheet. A debt security sold on repurchase terms imposing obligations on the credit institution and its contracting party is kept in the balance sheet notwithstanding the sale and repurchase agreement. If the credit institution or its contracting party is

16 16 (47) merely entitled, but not obliged, to sell or buy back the debt instrument, it is not, however, entered in the balance sheet. Debt securities lent to another party are entered under assets in the lender's balance sheet. Debt securities are entered under assets in the balance sheet once they have been transferred to the credit institution. A debt security which has been purchased is considered to have been transferred when the transaction has been concluded in a demonstrable and binding manner. The purchase price for each type of debt security is calculated using the FIFO method or the average cost method. If the latter method is applied, different types of debt security must be valued as separate categories. A debt security is considered to be of different type if it differs from another debt security in terms of the type of claim it represents, its interest rate linkage, maturity date or the issuer's other debt securities. A debt security for which the sum paid when it was acquired was above or below what the debtor must repay under the contract terms when the claim falls due (eg zero-interest loans) is also entered in the balance sheet at the price that was paid for it at the time of acquisition, adjusted by the direct commission expenses related to the acquisition. If the difference between the nominal value and the purchase price of a debt security is material, it is spread over the maturity of the debt instrument as interest income or a deduction therein. A counteritem is entered as an increase or a decrease in the purchase price of the debt security. The proportion of the difference between the purchase price and the nominal value of convertible bonds that corresponds to the value of the conversion right is not, however, spread over maturity. The market value of a debt security is the net present value of the principal and interest stream arising from the debt instrument and discounted at the market interest rate. The market interest rate is the HELIBOR rate corresponding to the remaining maturity of the debt instrument or a long-term reference rate, or in the case of debt instruments denominated in foreign currency, a corresponding, generally quoted international reference rate. If no reference rate has been quoted for the remaining maturity, the interest rate calculated by interpolating the reference rates quoted for the two closest maturity periods is used. The market interest rate is the reference rate quoted closest to the balance sheet date, unless the Financial Supervision Authority determines otherwise in exceptional circumstances. If the debt instrument is quoted publicly on the balance sheet date and the quotation is determined on the basis of the prevailing market interest rate in the above manner, the last quotation on the balance sheet date or, if no trades have been done, the corresponding bid quotation can be considered to be the selling price of the debt instrument.

17 17 (47) A debt instrument acquired in securities brokering on behalf of a customer is entered under this item if it has not been sold to a customer in a binding manner or the sale has been cancelled on the balance sheet date. The reference rates used in valuation or some other valuation principle must be disclosed separately in the balance sheet breakdown. Debt instruments held by the credit institution which have been issued by the credit institution itself are not entered as assets of the credit institution, with the exception of debt securities which are held as current assets and which have incidentally passed into its ownership in connection with trading. Public sector entities This item includes bonds, Treasury bills, local authority paper and other negotiable debt instruments and related matured and unmatured instalment coupons issued for public subscription by a public sector entity included in the official sectoral classification of Statistics Finland, or by a comparable foreign public sector entity. Other The item includes debt instruments issued by entities other than public sector entities. Shares and participations The item includes shares, original fund and investment shares, and other participations conferring a right to the equity capital of the undertaking concerned. Certificates conferring a right to the subscription of or return on shares and participations are treated as shares and participations, as too are common fund units. Shares and participations entered in the items Participating interests and Shares and participations in group undertakings appearing below are not, however, shown under this item. Similarly, shares and participations in real estate corporations are not entered under this item. Shares acquired on resale terms imposing obligations on the credit institution and its contracting party are not entered in the balance sheet under the credit institution's assets. If the credit institution or its contracting party is merely entitled, but not obliged, to repurchase or sell the shares or participations, they are, however, entered in the balance sheet. Shares or participations sold on repurchase terms imposing obligations on the credit institution and its contracting party are retained in the balance sheet notwithstanding a sale and repurchase agreement. If the credit institution or its contracting party is merely entitled, but not obliged, to sell or repurchase the shares or participations, they are not, however, entered in the balance sheet. Shares and participations lent to another party are entered under assets in the lender's balance sheet.

18 18 (47) Shares and participations are entered under assets in the balance sheet when they have been transferred to the credit institution. The purchased shares or participations are deemed to have been transferred when the sale has been concluded in a demonstrable and binding manner. Stamp duty, commission and other such direct costs paid on the purchase of shares or participations and related directly to the purchase price are capitalized in the purchase price of the shares or participations. Shares and participations can be valued applying the FIFO method or the average cost method. When the latter method is used, each share series must be valued as a group of its own. The market value of shares is the last quotation available on the balance sheet date or, if it cannot be considered a reliable indicator of the shares' actual market value, some other market value. The last quotation is deemed to be the price of the last round lot sold in the course of ordinary trading. If a value higher than the last available quotation is to be applied, the approval of the Financial Supervision Authority for such a valuation principle must be acquired. It must be stated in detail in the balance sheet how shares and participations have been valued. Shares or participations acquired through securities brokering on behalf of a customer are entered under this item if, on the balance sheet date, they have not been sold to the customer in a binding manner or if the sale has been cancelled. The purchase price of a warrant is deemed to be the difference between the total purchase price of the bond with equity warrants and the purchase price of the bond as calculated in the above section Debt securities. Shares and participations acquired to safeguard claims on customers shall be entered in an account of their own in the books, if the income and expenses arising from them are recognized as loan losses and adjustments thereto. Participating interests This item comprises shares and the participations referred to in the previous section in undertakings where the credit institution holds a participating interest as referred to in chapter 1, section 7, of the Accounting Act, with the exception of shares and participations in real estate corporations referred to below in section Tangible assets. This item includes all the participating interests of the group. Shares and participations in group undertakings This item comprises shares and the participations referred to in the above section Shares and participations in subsidiaries as referred to in chapter 1, section 6, of the Accounting Act, with the exception of shares and participations in real estate corporations referred to below in section Tangible assets. This item includes all

19 19 (47) shares in undertakings belonging to the group. Shares and participations in subsidiaries are included in this item even if they have been excluded from the consolidated accounts. Intangible assets This item comprises costs of establishment, goodwill arising in connection with the purchase of an undertaking and other notable expenditure expected to yield income for more than one year. Tangible assets This item comprises land and water areas, buildings, shares and participations in real estate corporations, machinery and equipment and other comparable moveables. Real estate corporations here refers to housing companies, real estate companies and other such companies and cooperative societies which do not engage in any business other than ownership of the real estate specified in the articles of association or rules. A credit institution's subsidiaries and participating interests of this kind are also considered to be real estate corporations. This item does not include moveables serving as collateral for an unpaid claim, unless these were intended to remain in the permanent use of the credit institution itself. Immoveables and shares and participations in real estate corporations are, however, included in this item irrespective of how they have been acquired. Land and water areas, buildings and shares and participations in real estate corporations in the credit institution's own use include land and water areas and buildings which are, at the end of the financial year, de facto in the own use of the credit institution or an undertaking belonging to its group as office, storage or other comparable premises, or which the staff uses as residences or for leisure or other such purpose, and shares and participations in real estate corporations conferring the right to possess such premises. If only a part of a land or water area or a building is in the own use of a credit institution, enter under this item the proportion of the entire land or water area or building that is de facto in its own use at the end of the financial year. Stamp duty and commissions paid at the time of acquisition and real estate improvement expenses can be capitalized in the purchase price of real estate and shares and participations in real estate corporations. The book value of land and water areas, buildings and shares and participations in real estate corporations can be increased in the manner described in Appendix III. Assets entered under this item that have been acquired to safeguard claims on customers shall be entered in an account of their own in the books, if the income and expenses arising from them are recognized as loan losses and adjustments thereto.

20 20 (47) Claims in respect of share, investment share capital and original fund issues The item comprises the unpaid amount for subscribed shares, investment shares or original fund shares until such time as it has been paid or the subscription invalidated. Own retained shares Own retained shares may be entered under this item in the balance sheet, if they are subject to public trade as referred to in chapter 1, section 3, of the Securities Markets Act and if an amount corresponding to their purchase price is entered as a nondistributable item under Non-restricted reserves. Other assets Cash items in the process of collection This item comprises claims arising from payment transactions and payable on demand. Guarantee claims This item also includes claims under a right of recourse based on guarantees and other comparable off-balance sheet commitments. Derivative contracts This item includes items pertaining to options, futures and forwards and interest rate swaps to be entered under assets in the balance sheet. It also includes interest attributable to such interest rate swaps as are entered under Net income from securities transactions in the profit and loss account. Other This item comprises assets which are not shown under any other item, such as claims in respect of the sale of assets, claims in respect of compensation and moveables serving as collateral for unpaid claims. On the other hand, the item does not include shares serving as collateral for unpaid claims or immoveables. It does, however, include margin account claims related to derivative contracts. Accrued income and prepayments This item comprises interest and other income relating to the financial year but not due until after its expiry adjusted or supplemented to comply with the accruals convention and interest and other expenses incurred but relating to a subsequent financial year.

21 21 (47) If it is not clear whether a payment is to be entered as payment of interest or repayment of principal, it must in the first instance be entered as an interest payment, unless the credit institution has decided to discontinue the collection of interest. LIABILITIES General rules concerning liabilities If the amount received when a liability was incurred is either more or less than the amount the credit institution is liable to repay under the loan terms when the liability falls due (eg zero-interest loans), the liability is entered in the balance sheet at the amount received when the liability was incurred, adjusted by the direct commission expenses arising from the drawing of the liability. If the difference between the amount payable when it falls due and the amount received when the liability was incurred is material, it is spread as an interest expense or as an adjustment thereto over the maturity of the liability. A counteritem is entered as an increase or decrease in the liability's book value. The selling price of assets sold on repurchase terms imposing obligations on the credit institution and its contracting party is entered under liabilities in the balance sheet. The difference between the repurchase price and the selling price is entered as interest expense and accrued expense during the maturity of the liability. If the credit institution or its contracting party is entitled, but not obliged, to sell or repurchase the assets, the selling price is not entered under liabilities. A liability is regarded as being repayable on demand if it can be called in immediately or after a maximum period of notice of one business day. Liabilities to credit institutions and central banks This item comprises liabilities to credit institutions and central banks referred to in the above item Claims on credit institutions. Liabilities to the public and public sector entities The item comprises liabilities to parties other than credit institutions and central banks. Deposits This item consists of deposits accepted in deposit accounts as referred to in section 50 of the Credit Institutions Act.

22 22 (47) Other liabilities This item consists of liabilities which are not included in deposits and which are due to parties other than credit institutions or central banks. Debt securities issued to the public General rules A debt security issued to the public refers to bonds, certificates of deposit and any other comparable negotiable bearer bonds and promissory notes made out to order and issued by a credit institution. Debt instruments redeemed by the credit institution before their maturity are entered as a deduction in this item, with the exception of debt instruments that have incidentally passed into the ownership of the credit institution in connection with trading. Bonds This item comprises bonds issued by a credit institution. Other This item consists of certificates of deposit issued by a credit institution and comparable promissory notes, other than those issued to the public. Other liabilities Cash items in the process of collection This item comprises liabilities arising from payment transactions and payable on demand. Derivative contracts This item comprises the amount pertaining to options, futures and forwards and interest rate swaps to be entered under liabilities in the balance sheet. It also includes interest attributable to such interest rate swaps as are entered under Net income from securities transactions in the profit and loss account. Other liabilities The item comprises accounts payable and other liabilities which are not based on the granting of credit, including liabilities arising from the transfer of borrowed securities to a third party.

23 23 (47) Accrued expenses and deferred income This item comprises interest and other expenses relating to the financial year but which will not be paid until after its expiry adjusted or supplemented to comply with the accruals convention, and interest and other advance income received but relating to a subsequent financial year. Compulsory provisions Pension provisions The uncovered pension liability calculated on an actuarial basis is entered under pension provisions. Provisions for taxes This item comprises provisions set up in the event of probable residual taxes resulting from eg a tax inspection or legal proceedings. Other compulsory provisions Entries under other provisions comprise a provision for future specifiable expenses and losses which are likely or certain to arise, but whose amount and the time when they will arise is still uncertain, as explained in more detail in chapter 5, section 14, of the Accounting Act. Specific loan loss provisions or other comparable items related to the valuation of specified balance sheet items are not entered under this item but as a deduction in the item under which the relevant loan or other asset item has been entered. Subordinated liabilities This item comprises subordinated debt securities issued by a credit institution and other subordinated liabilities. It also consists of perpetuals and other subordinated hybrid capital instruments. Appropriations Depreciation difference This item comprises the difference between recorded and planned depreciation. Fund for general banking risks This item comprises a provision set up in the annual accounts in the event of unspecific loan loss, foreign exchange and other comparable risks connected with credit institution business. The item includes an annual entry of the amount recorded

24 24 (47) in the profit and loss account item Appropriations. Losses entered under the profit and loss account item Loan and guarantee losses cannot be entered here. Other voluntary provisions This item comprises voluntary appropriations other than those entered under Fund for general banking risks, eg appropriations allowed under taxation laws. Share capital / cooperative capital / basic capital Paid-up capital is entered under this item. If the share, cooperative or basic capital or a part thereof has not been entered in the trade register, the unregistered amount must be stated in the balance sheet as a separate sub-item under this item. Investment share capital/original fund/additional capital Investment share capital as referred to in section 164 of the Cooperative Bank Act or an original fund as referred to in section 14 of the Savings Bank Act or additional capital as referred to in the Mortgage Society Act is entered here. If the investment share capital or the original fund or a part thereof has not been entered in the trade register, the unregistered amount must be stated in the balance sheet as a separate sub-item under this item. Share premium account Funds accruing to a credit institution in connection with the acquisition of equity capital that exceed the nominal value of shares, and capital gains on the sale of own shares and shares in the parent undertaking, as referred to in chapter 12, section 3a, of the Companies Act, must be entered in the share premium account. Revaluation reserve The item comprises revaluations and associated reversing entries concerning buildings, real estate, shares in real estate corporations and shares and participations held as financial fixed assets, as approved by the Financial Supervision Authority and described in more detail in Appendix III. Other restricted reserves Reserve fund Payments as referred to in chapter 12, section 3, of the Companies Act are entered as an increase or decrease in the reserve fund of a limited-liability credit institution, payments as referred to in section 31, paragraph 3, and section 39 of the Savings Bank Act are entered as an increase or decrease in the reserve fund of a savings bank, and payments as referred to in section 13 of the Cooperative Bank Act are entered as an