Financial statements form an important input for banking prudential supervision. There are, however, different objectives between banking supervisory expectations and financial reporting requirements.
The banking supervisory expectations are primarily intended to ensure the stability and solvency of the supervised banks. On the other side, the purpose of financial reporting is to provide decision-useful information for a wide range of users.
Accountancy Europe’s information paper highlights important areas of convergences between the two but also points out examples where there is a limit to full harmonisation.
Our paper is intended to provide a basis for an in-depth discussion with all stakeholders in particular banks, auditors and banking supervisors.
Financial instruments reporting: supervisory expectations versus financial reporting requirements
Financial statements are at the heart of both banking supervision and financial reporting. They are the common foundation used by supervisors, auditors, investors, and bank managers alike. Yet, while they rely on the same information, their goals are fundamentally different:
Supervisory expectations aim to keep banks stable, solvent, and resilient in the face of risks.
International Financial Reporting Standards (IFRS) seeks to provide useful, neutral, and comparable information to investors, lenders, and other users worldwide.
This difference in objectives creates natural tension. Supervisors often push for prudence and conservatism, while IFRS prioritises clarity, neutrality, and international comparability. As a result, there are areas where rules overlap and complement each other, and others where they conflict or diverge.
1. Different purposes
Supervisory expectations (ECB and national supervisors)
Supervisory authorities, such as the European Central Bank (ECB), are primarily concerned with financial stability. Their goal is to prevent crises and ensure that banks remain strong enough to withstand shocks. To achieve this, supervisors often:
Apply conservative interpretations of financial reporting requirements.
Focus on detecting and addressing risks early, before they appear in financial results.
Operate within the European banking system, tailoring expectations to local conditions.
Financial reporting (IFRS)
In contrast, IFRS serve a much broader purpose. They are designed to:
Provide decision-useful information to investors, analysts, and lenders.
Promote transparency, neutrality, and comparability across countries and industries.
Support a global audience, beyond Europe, ensuring financial statements are consistent and understandable worldwide.
2. Key contrasts
Supervisory expectations
IFRS requirements
Prudential conservatism
Neutrality & comparability
Mandatory adjustments
General principles
Risk-specific treatments
Management discretion
Focus on solvency & safety
Focus on decision-useful information
These contrasts show why alignment is sometimes difficult: the same financial statements must serve two very different purposes.
3. Areas of alignment and tension
Where they align
Despite differences, some supervisory expectations can fit within IFRS principles:
Stage transfer (IFRS 9)
Low credit risk exemption (IFRS 9)
Design and probability of occurrence of scenarios (IFRS 9)
Minimum discounts on market prices in collateral valuation
Safety margins when using credit risk parameters due to model and data inadequacies (IFRS 9)
Determination of fair values in accordance with IFRS 13
Where they may diverge
Other areas reveal clear conflicts:
Supervisory minimum risk provisioning in accordance with the ECB’s NPL guidance
Regulatory requirements for credit risk parameters
Supervisory cure periods
4. The role of management discretion
Bank management plays a key role in applying accounting rules.
Supervisory expectations are not automatic accounting changes. Just because a supervisor requires a conservative treatment for prudential purposes does not mean it must be adopted in IFRS accounts.
Changes in accountingpolicies can only occur if required by IFRS itself, or if they genuinely improve the reliability and relevance of information. Supervisory requests alone are not enough.
Changes in estimates are more flexible. Banks may adjust assumptions, models, or data inputs as conditions evolve. Supervisory influence may justify these changes, but they must still fit within IFRS principles.
Management and auditors must judge each case carefully.
5. Conclusion
Our paper makes three big points:
Objectives differ
Supervisors are focused on stability and solvency.
IFRS is focused on delivering decision-useful, globally comparable information.
Harmonisation is limited
Some overlap exists, but conflicts are inevitable.
IFRS is international; supervisory requirements are regional.
Judgement is essential
Supervisory expectations can inform, but not dictate, financial reporting.
Each situation must be assessed carefully to ensure IFRS compliance.
