Cross compensation
In bank accounting, cross-compensation is the offsetting of income and expenses across different business lines .
Statutory provision
After § 340f Para. 3 HGB ( provision for general banking risks ) income and expenditure can in connection with the securities of the liquidity reserve and the loan losses incurred and no interest expense or interest income or current earnings represent, are netted.
method
Income and expenses from other securities and receivables are all income and expenses that arise in connection with the securities portfolio of the liquidity reserve and the lending business and do not represent interest income or current income. Cross compensation takes place here. If cross-compensation is used, it can not be seen in the annual financial statements whether and to what extent provision reserves have been created or dissolved.
Problems
If cross-compensation is applied, it is no longer possible for the addressee of the annual financial statements to determine whether and to what extent hidden reserves are created or dissolved in accordance with Section 340f of the German Commercial Code.
advantages
The possibility of smoothing company profits creates confidence in the security of their deposits among investors. The prerequisite for this is both a naive and ignorant investor and a bank management who acts in the interests of the investor.
Treatment in the IAS
Cross-compensation is not possible in the IAS . Here risk provisioning relates exclusively to the valuation result in the lending business. Risk provisioning is possible similar to Section 340g HGB "Special items for general banking risks" by showing these items openly in the revenue reserves ("Additions to the special item or the income from the liquidation of the special item must be shown separately in the profit and loss account. ").
As a net figure, it contains the balance of depreciation, value adjustments and provisions for latent and discernible risks and the income from the reversal of these items. There is no possibility of creating reserves , either for loans or for securities.
- advantages
- Here, too, creditors can be protected by a low assessment of the distributable profit, but at the same time the pre-decision information function is ensured, since the formation and dissolution of precautionary reserves can be traced.
- Imbalances cannot be covered up by dissolving hidden reserves.
- Addressees receive more precise and therefore better information for the rational investor.
