Good quality financial statements typically contain comparable and reliable information, which depends in turn on the accounting standards being used. In this respect, IFRS can help ensure that financial reporting is prepared under accepted principles that convey a true and fair view of the financial position. BIS Review 114/2007  1  For the banking sector, the most important accounting standard is the IAS 39 because it deals specifically with financial instruments. The standard assures that financial instruments are correctly recognized and measured in the financial statements, to reflect the true financial position and performance, as well as the related risk exposure. Under IAS 39, there is important change to the accounting for derivative transactions, in which banks need to markto-market and record all derivatives on their balance sheets, as well as classify them as held for trading, unless they are used as hedging instruments. Previously, all derivative transactions are kept off the balance sheet, and hence from the recognition of external stakeholders or even bank management. IAS 39, therefore, brings off-balance sheet items into the spotlight. Apart from IAS 39, commercial banks also need to comply with the accounting standards concerning financial instrument’s presentation (IAS 32) and disclosure (IFRS 7), which require banks to present their financial statements in an appropriate format, and to disclose information sufficiently regarding financial instruments and risk. Ladies and Gentlemen, The Bank of Thailand has taken a careful timing to implement both standards in Thailand.
Improved from Basel I, Basel II provides guidelines for maintaining capital for more comprehensive types of risks. Under Pillar 1, as you know, banks are required to maintain minimum capital for operational risk in addition to market and credit risks as previously required. And on top of the minimum capital, additional capital may be recommended by national supervisors under Pillar 2 for risks not covered by Pillar 1. Because Basel II will be imposed on a wide range of financial institutions with different sophistications, the framework offers several approaches to calculate minimum capital, ranging from a simple factor multiplication approach to model-based methodology. Obviously, we as supervisors, expect complex financial institutions to adopt the model-based methodology for a better measurement and assessment of risk. One important point I would like to stress here is that Basel II should not be viewed as merely a capital calculation methodology. Rather, it should be seen as a principle-based guideline for sound risk management. This is because Basel II’s advanced approaches are derived from the best banking practice. It is, therefore, a vehicle for better risk management. Banks in emerging markets, including here in Thailand, should, therefore, take advantage of this opportunity to improve their operations. From the perspective of financial information, it is also necessary for banks to produce good quality financial statements so that stakeholders will be well-informed, and a sound judgment on their financial status can be made by the market.