The Comparison of Financial Reports in Banking Industry

Financial Statements are a significant part of business finance which shows the historical of the company and expected future forecast of the company. Normally, there are three financial statements should be used balance sheet, statement of income statement, and statement of cash flow. First, the balance sheet help to understand company annual accounts. In the United States, Companies usually have two common formats for their balance sheets: the “two-sided” format which assets on the left side and liabilities and owner’s equity on the right side. The other format is the assets part on top and the liabilities part and owner’s equity part on bottom, which is normally called “report” format. The difference is how you disposal account information. The third way is named as “Financial Position” format that is generally used in Europe. (Lita n.d.) In our selected bank industries, Bank of America, Deutsche Bank, Swedbank ,National Australia Bank and HSBC Bank are all using “report form” type which with assets at the top on a single page. (Appendix)

However, Christopher (2012) explained that some companies are using “financial position” format which would like to put accounts in order to calculated net current assets and net assets. Moreover, the assets and liabilities should be proposed in some specific order in balance sheet. The most easiest way to realized assets is in liquidity order. It is displayed of decreasing liquidity which means cash first, or, increasing order of liquidity which means from intangible fixed assets. In order of liabilities, it will be shown in the most instant liability being placed first. (Business accounting guides n.d.) Generally, the increasing order is used by countries in EU and the decreasing order is used by countries affected by USA. (Christopher, 2012) For example, in all selected five banks are used decreasing order for assets which showed on 2011 balance sheet. (Appendix)

Just like balance sheet, there are several ways of representing the statement of income. Income statements play an primary role in each societies and tax system. Especially, for a bank which need to obey the law submit an income statement which presents the amount of salary, pension, tax withheld and etc. Specifically, there are two methods to categorize expenses:”by nature” and “by function”. In “by nature” method also called “nature of expenditure method” which expenses are directly record to theirnature, for instance, transportation,  depreciation, salaries and so on. While, in “by function” method also named as “cost of sales method” which expense are directly record according to their role, for example, administration expense, cost of goods sold, and so forth. Those five bank industries are all used “function” way to record their accounts on the statement of income and they are used vertical type structure as well. (Appendix) And, the most important thing is vertical structure is convenient to read. (Yuan n.d.)

It is significant to notice that cash flow is the movement of money into and out of the company. There are two methods to prepare a statement of cash flow: direct and indirect. Under the direct method, analyze cash and bank accounts to identify cash flows during the given period. However, under the indirect method, normally operation activities start from net income and analyze income, expense, and working capital. The rest of investing activities and financing activities would be use the same way like direct method. (Zions business resource center n.d.) In those five banks only National Australia Bank used direct method prepared their 2011 statement of cash flow which start from “interested received” account. The rest of four banks used indirect method. Swedbank put “operating profit” on the top; HSBC Bank put “profit before tax” on the top; and both of Bank of America and Deutsche Bank put “net income” on the top, which all indicated that they are using indirect method. (Appendix)

Reference:

Web page:
Business accounting guides n.d., view by 12 October 2012,

Lita Epstein n.d., Choosing a Format for a Balance Sheet, view by 12 October 2012,

Book:
Christopher Nobes, Robert Parker 2012, “Some examples of difference”, in 12 edition, Comparative International Accounting, Pearson, New Jersey, pp 48

Thesis:
Yuan Ding n.d., “Why firms opt for alternative-format financial statements? some evidence from France”, Associate professor, HES School of Management, Paris, France

Report:
Zions business resource center n.d., How to prepare a cash flow statement, Zions business resource center, Zions Bank