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UK Bank Interim Results IAS34 & Twitter

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THIS BLOG REFERS THE FOLLOWING 

 

Barclays PLC Interim Results 2011

HSBC Holdings plc 2011 Interim Results 

LBG Interim Results 2011

Why the RBS and Lloyds Capital raisings are seriously bonkers

 

UK Bank Interim Results IAS34 & Twitter

One cannot help but notice on twitter the increasing frequency of the use of phrases like "manipulation", "something funny"; "difficult to understand"; in relation to the all of the earnings figures of the banks reported recently but in particular the British ones.

An example is here; "earnings manipulation over '10 interims"; answer: IAS34; its now expected; same Lloyds, RBS; Reported Return on RWA's @ #Barclays Wealth in '10, 1.4% ('09 = 1.1%). In '11,1.3%. '11 ROE = 10% ('10 = 10%). Yet projecting 17-18% in '13?

This is a quote from a twitter correspondent. There are several other similar tweets, some from quite prominent people. Twitter inspired and triggered this critique of an accounting standard. On twitter one is restricted to engineering "sound bytes" (literally) since one tweet must be squeezed in (with all sorts of shortening techniques) to 128 bytes; the universal size of a data packet at the transport layer (the phone line bit) of any high speed network in the globe.

You can't critique an accounting standard however briefly in a tweet; 128 bytes is insufficient memory but what Twitter is useful for is the dialogue-trigger: getting the analysis-target identified; in this case (in my opinion [& it may only be a partial differential] the accounting standard IAS34. So this blog is nothing more than a concatenation of electronic communication on a similar topic. Back in February this year in a comment to a blog post on LBG, I said this (I simply presented the list)";- 

 

(Lloyds Interims, Nov 2010)

The governing standard of which is IAS34 (Interim Accounting)

IAS34 References

http://www.iasplus.com/standard/ias34.htm

https://pwcinform.pwc.com/inform2/show?action=informContentPrint&id=0915084403183474

Therefore for Lloyds the 2009 annuals are the comparative basis

 http://www.lloydsbankinggroup.com/media/pdfs/investors/2009/2009_LBG_R&A.pdf

 But the 2009 annuals are prepared on an interim (IAS34) and 'Combined Business' basis

IAS34 entails that note 56 governs the accounts not only in '09 but also the interims in '10; and thus only the rules of IAS34 govern both sets of accounts; it remains to be seen what is yet to be reported by the Group. It's also worth noting that note 56 means that all material accounting presentation is in note 54 (in '09)! 

FOR COMPARISON

http://www.ubs.com/1/ShowMedia/investors/releases?contentId=187896&name=4q10_report_web.pdf

http://www.db.com/en/media/Deutsche_Bank_Annual_Press_Release_2011_-_Presentation.pdf

OUT OF INTEREST

http://www.lloydsbankinggroup.com/media/pdfs/investors/2010/DBRS_LBG_17Nov10.pdf

http://www.bankofengland.co.uk/publications/externalmpcpapers/extmpcpaper0031.pdf

......& the same continues today ........

That was Lloyds, that was February this year, lets return to now and Barc and HSBC which is the immediate focus of my lazer-like interlocutor on Twitter; who asks the 64thousand dollar question: "Tx for helpful links. Read PwC summary of IAS34. Still fail to see how KPI's (eg ROTE) cld change signif from prior+"; here is the answer which one cannot fit in a data packet;-

It's the key critique of IAS34

Stepping back a wee bit from the over legalistic not to say pompous diction of the statement of the accounting standard referred above. "paragraph Aforesaid (!!)"  in essence for any important managerial accounting number you can assume what you like so long as its benchmarked against some arbitrarily selected similar number in a previous period AND crucially this is dependent upon agreement with the audit committee and the auditors (remember). Thus IAS34 creates indeterminacy throughout the business processes which collect any basic number. Since KPIs and all summary dashboard numbers are aggregates or dependent upon the said managerial or activity numbers then IAS34 by definition skews them too

In summary

.....under IAS34 u can assume anything so any metric which summarises is contaminated ... where it creeps in (note always with the auditors approval) it pervades like a virus, it goes viral, causing other issues lack of focus, its easy to let that kind of pass the parcel go on, particularly in a bank which is actually not subject to any real market discipline since its majority shareholder is the government and there is not a real timetable for it to return into the private hands of the market and thus be subject to some publicly disciplined reporting ; one should be concerned to ensure that any large scale transactions executed by these state-majority owned banking monoliths be applied with the toughest most diligent most precision engineered type of scrutiny no complex IFRS referenced accounting slight of hand will do when these state owned monsters disgorge some of their fat ..

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