THE IMPACT OF ACCOUNTING TREATMENT OF FINANCIAL INSTRUMENTS SUBSEQUENTLY MEASURED ON THE FINANCIAL POSITION AND PROFITABILITY OF THE CROATIAN BANKING SECTOR

Hrvoje Percevic () and Mirjana Hladika ()
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Hrvoje Percevic: Faculty of Economics and Business Zagreb
Mirjana Hladika: Faculty of Economics and Business Zagreb

Economic Thought and Practice, 2012, vol. 21, issue 2, 663-692

Abstract: There are four basic categories of financial instruments according to IAS 39 each with different accounting treatment which causes various impacts on financial position and profitability of a bank. The initial hypothesis of the paper is that “current accounting treatment of financial instruments can significantly affect bank’s financial position and profitability†and in situation of unreliable valuation of financial instruments the financial position and income of bank may be distorted. This paper will present how valuation of financial instruments can affect bank’s financial position and income, as well as consequences which may appear from such valuation. The analysis of balance sheet and income statement of Croatian banking sector indicate that credits to clients are the dominant item in the assets structure of Croatian banking sector, while other financial assets categories don’t have the significant portion in total assets structure. This means that the majority of financial instruments in Croatian banking sector are subsequently measured at amortised cost, not at fair value. Financial instruments subsequently measured at fair value don’t have significant impact on financial position and income of Croatian banking sector. Expected loss model defined in new IFRS 9 Financial Instruments will have the most significant impact on financial position and profitability of Croatian Banking Sector.

Keywords: financial instruments; subsequent measurement; financial position; profitability; Croatian Banking sector (search for similar items in EconPapers)
JEL-codes: G21 M41 (search for similar items in EconPapers)
Date: 2012
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