Preparation and Presentation of Financial Statements of Banks

The Bank’s financial statements are prepared under the historical cost convention, on the accrual basis of accounting on a going concern basis, unless otherwise stated, and conform in all material aspects to Generally Accepted Accounting Principles (GAAP) in India, which comprise applicable statutory provisions, regulatory norms/guidelines prescribed by the Reserve Bank of India (RBI), Banking Regulation Act 1949, Accounting Standards (IND-AS), and the practices prevalent in the banking industry in India.

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. The estimates used in the preparation of the financial statements shall be prudent and reasonable.

The Accounting Standards Board of the Institute of Chartered Accountants of India issued ‘Framework for the Preparation and Presentation of Financial Statements’.

Financial statements are documents that summarize a business’s financial activities, performance, and health over a specific period. They are used to report a company’s financial status to external users, such as investors and lenders. A complete set of financial statements normally includes a balance sheet, a statement of profit and loss (also known as ‘income statement’), a cash flow statement, and those notes and other statements and explanatory material that are an integral part of the financial statements. They may also include supplementary schedules and information based on or derived from, and expected to be read with such statements. Such schedules and supplementary information may deal, for example, with financial information about business and geographical segments, and disclosures about the effects of changing prices. However, the Director’s report and the chairman’s Statement, are not the part of Financial Statements.

The five main elements of financial statements are assets, liabilities, equity, income, and expenses.

Assets are usually recorded on the balance sheet at their original cost, minus accumulated depreciation. Liabilities refer to obligations to other entities, such as bills, rent, and debt. Equity is an enterprise’s assets less its liabilities. Equity is also known as net worth or shareholders’ equity. Income is the money an enterprise earns from its operations, before accounting for expenses. Income is reported on the income statement, along with expenses and earnings per share. Expenses are the money an enterprise spends on its operations, before accounting for income. Expenses are reported on the income statement. These broad classes are termed the elements of financial statements.

The elements are presented in different financial statements in different ways:

Balance sheet: Assets, liabilities, and equity are the elements of a balance sheet.

Income statement: Revenue and expenses are the elements of an income statement.

Cash flow statement: Operating activities, investing activities, and financing activities are the elements of a cash flow statement.

A bank’s balance sheet can be used to evaluate its liquidity, solvency, and overall financial health. It’s also a key way to understand a bank’s business and the resources it uses to finance lending.

Information about financial position is primarily provided in a balance sheet. Performance information is primarily provided in a statement of profit and loss. Information about cash flows is provided in the financial statements using a cash flow statement.

The parts of the financial statements are interrelated because they reflect different aspects of the same transactions or other events. Although each statement provides information that is different from the others, none is likely neither to serve only a single purpose nor to provide all the information necessary for the particular needs of users.

The financial statement also contains notes supplementary schedules and information. For example, they may contain additional information necessary for the particular needs of users.

A bank’s balance sheet can be used to evaluate its liquidity, solvency, and overall financial health. It’s also a key way to understand a bank’s business and the resources it uses to finance lending.

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