Accounting Manual for Deposit-Collecting Institutions and Holding Company — SSF — SV

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-11/2022
NCF-01
ACCOUNTING MANUAL FOR DEPOSIT-COLLECTING INSTITUTIONS AND HOLDING COMPANY Approval: 12/30/2022 Validity: 01/16/2023

THE STANDARDS COMMITTEE OF THE CENTRAL RESERVE BANK OF EL SALVADOR,

CONSIDERING:
I. That Article 4, subsection c) of the Law on Supervision and Regulation of the Financial System establishes that the Superintendence of the Financial System has among its powers to conduct individual and consolidated supervision of the members of the financial system, as well as the supervision of other regulated subjects.
II. That Article 7 of the Law on Supervision and Regulation of the Financial System establishes who is subject to the provisions of said Law and therefore to the supervision of the Superintendence of the Financial System.
III. That Article 35, subsection f) of the Law on Supervision and Regulation of the Financial System establishes that it is the obligation of the supervised entities to adequately disclose the economic and financial reality, and they must have the backing of their internal and external audits.
IV. That Article 99, subsection c) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Standards Committee of the Central Reserve Bank to approve the Technical Standards for the preparation, presentation, and dissemination of Financial Statements and supplementary information of the members of the financial system; to determine the accounting obligations and the principles according to which they must keep their accounting; and to establish criteria for the valuation of assets, liabilities, and the establishment of provisions and reserves for risks.

THEREFORE,

by virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System, AGREES to issue the following:

ACCOUNTING MANUAL FOR DEPOSIT-COLLECTING INSTITUTIONS AND HOLDING COMPANY

CONTENTS

CHAPTER I
GENERAL PROVISIONS
Comprises the general application provisions in the recording of operations of supervised financial entities subject to this accounting framework.

CHAPTER II
ACCOUNTING FRAMEWORK
Comprises the accounting principles that entities will apply, which will be composed of sections indicating how to proceed for the accounting of regulated elements.

Sections of the Chapter:
SECTION I. Recognition of interest on active credit risk operations.
SECTION II. Accounting reclassification of loans, contingencies, and suspension of interest recognition.
SECTION III. Derecognition of impaired credit risk assets and subsequent recoveries.
SECTION IV. Recognition, measurement, and presentation of extraordinary assets.
SECTION V. Recognition of commissions on loans and contingent operations.
SECTION VI. Establishment of country risk reserves.
SECTION VII. Specific treatments defined for the presentation of financial statements.
SECTION VIII. Preparation and publication of financial statements: presentation and disclosure.
SECTION IX: Financial investments.

CHAPTER III
CHART OF ACCOUNTS
Comprises the list of accounts provided for the accounting of respective operations.

CHAPTER IV
ACCOUNTING APPLICATIONS MANUAL
Comprises the description of the concept of accounts and the main applications by which they will be affected.

CHAPTER V
FINANCIAL STATEMENTS
Includes the models of financial statements.

CHAPTER VI
OTHER PROVISIONS AND VALIDITY
Comprises provisions corresponding to sanctions, repeals, transitional aspects, unforeseen aspects, and validity.

CHAPTER I
GENERAL PROVISIONS

INTRODUCTION
This "Accounting Manual for Financial Deposit-Collecting Institutions and Holding Company", hereinafter the Manual, aims to present in a uniform and homogeneous manner the accounting recording of the operations performed by these entities. Thus constituting an essential tool for the integration of financial statements, which must faithfully reflect the financial situation, results of operations, and management of the entities, so that they constitute a useful instrument for the analysis of information and decision-making by the administrators and shareholders of the entities, the Superintendence of the Financial System, hereinafter Superintendence; the Central Reserve Bank of El Salvador, hereinafter Central Bank, investors, users of financial services, and the general public. The Manual is mandatory for all entities detailed within the scope of this document. The accounting aspects contained in this Manual, for the recording of different types of operations related to the financial system that require prior authorization, do not constitute express authorization to carry out the operations referred to; entities subject to the application of this Manual must comply with the legal provisions and technical standards issued for such effect.
OBJECTIVES
2.1. General Objective
To provide a technical instrument for the uniform recognition, measurement, presentation, and disclosure of economic events, based on the financial and regulatory frameworks established by the Central Reserve Bank of El Salvador through its Standards Committee, as well as international best practices for banking operations. (1)

2.2. Specific Objectives
To have useful and timely information about the financial situation of the entities that contributes to decision-making by administrators, owners, supervisory and regulatory bodies, depositors, and other users of financial statements.

To obtain homogeneous information that reflects the economic and financial situation and management results in an integral manner, allowing for the monitoring of supervised entities and the financial system as a whole.

SCOPE

The Manual consists of the General Provisions, Accounting Framework, Chart of Accounts, Accounting Applications Manual, and the formats of the Financial Statements.
The subjects obliged to comply with the provisions established in this Manual are:
a) Banks incorporated in El Salvador; b) Branches of foreign banks established in the country; c) Cooperative Banks; d) Savings and Credit Societies; e) Financial Federations regulated by the corresponding Law; f) Agricultural Development Bank, insofar as it does not contradict its Creation Law; (3) g) Mortgage Bank of El Salvador, S.A.; h) Development Bank of the Republic of El Salvador and the Economic Development Fund, insofar as they do not contradict their Creation Laws; and (2) (3) i) Holding companies of exclusive purpose. (2)

PROCESSING OF ACCOUNTING OPERATIONS
Entities subject to this Manual may process their accounting operations by the means they deem convenient, provided it allows for their analysis and supervision. For this purpose, such entities must request authorization from the Superintendence regarding the accounting information processing system they will use, when they begin operations or when there is a change in said system. The documentary or electronic source of each accounting entry must contain sufficient explanations regarding the operation being recorded.
MODIFICATION OF THE MANUAL
The coding and openings established in this Manual must be respected in their entirety; therefore, no new elements, classifications, headings, accounts, and subaccounts different from those already established may be opened. However, designations may be added starting from digit 11 as necessary, provided they correspond to the nature of the account from which they originate. When any operation or transaction not provided for in this Manual arises, entities must communicate this to the Central Bank, attaching the accounting criteria they intend to use, as well as the accounts to be used, describing the transaction or event and the reasons justifying the proposed treatment. Such communication must be sent physically or by email, duly signed by the responsible persons. The Central Bank will analyze the request, and if the proposed accounting application is appropriate and implies a modification of the Manual, the corresponding regulatory process for its approval will be activated. Prior to the modification of the Manual, the entity must account for the operation or transaction temporarily in subaccounts corresponding to the designations "others" in the heading identified by the entity, and when the Central Bank approves the aforementioned modification, the entity must reclassify the transaction to the accounts that have been approved for such effects. (2)
RESPONSIBILITIES
6.1. Accounting Records
It is the responsibility of the Administration to record the entity's operations, from the preparation of vouchers, documents, records, and files of transactions, to the formulation of financial statements and other reports for their corresponding analysis, interpretation, and accounting consolidation.

6.2. Timeliness of Accounting Records
Likewise, it is the responsibility of the administration to timely account for transactions, which will be recorded in accounts whose title corresponds to their nature.

6.3. The Accountant
It is the responsibility of the administration to hire the General Accountant, who should preferably be a professional in public accounting, with sufficient training, capacity, and experience, and must meet the requirements established in the Law Regulating the Practice of Public Accounting and Auditing, and be authorized by the Council for the Supervision of the Public Accounting and Auditing Profession.

SUBMISSION OF INFORMATION
7.1. Timeliness
Entities will remit the corresponding financial information within the deadlines defined in this Manual. Lack of timeliness in submission will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System. Entities must designate an official responsible for timely compliance with information requests made by the Superintendence, without prejudice to the responsibility that falls on the legal representative, internal auditor, and general accountant.

7.2. Frequency

7.2.1. Weekly Balances
Weekly financial position statements (cut off on Friday) will be prepared and delivered to the Superintendence within the deadlines established in the Technical Standards for Submission and Collection of Information for the Statistical Accounting System of Financial Entities (NRP-51). (3) The provision established in the previous paragraph regarding the submission of weekly financial position statements will not apply to Holding companies of exclusive purpose. (2)

7.2.2. Monthly Financial Statements
Entities must mandatorily present monthly financial statements, which must be delivered to the Superintendence within the deadlines established in the Technical Standards for Submission and Collection of Information for the Statistical Accounting System of Financial Entities (NRP-51). (3)

7.3. Mechanisms
The required financial information will be submitted to the Superintendence by entities through a digital network of information systems, modem, or any other data storage medium, according to the technical specifications contained in the Technical Standards for Submission and Collection of Information for the Statistical Accounting System of Financial Entities (NRP-51), without prejudice to paper supports that may be required depending on the circumstances. (3)

7.4. Procedures
Financial statements must be submitted to the Superintendence according to the provisions established in this Manual. In the case of financial conglomerates, exclusive purpose companies (shareholding companies); and holding banks, they will be responsible for submitting consolidated statements with their subsidiaries, within the deadlines and with the periodicity indicated in this Manual. In order to guarantee that the transmission of financial statements is carried out free of arithmetic errors or in the structure of the file being sent, entities must perform validations on their files prior to sending. The Superintendence will confirm the correct receipt of the information transmitted by entities through automatic validations in accordance with the corresponding regulatory framework.

7.5. Level of Detail
The minimum accounting information to be submitted to the Superintendence will comprise subaccounts up to 10 digits; without prejudice to norms requiring a greater level of detail.

ECONOMIC PERIOD
The economic and accounting period will comprise from January 1 to December 31 of each year.
ACCOUNTING RECORDS
9.1. Accounting Books
The movement and balance of accounts will be recorded in main books and subaccounts in auxiliary books as deemed necessary.
The main books that must be legalized are those indicated by the Code of Commerce.
Accounting records must comply with what is established in Title II, Book Two, of the Code of Commerce, insofar as applicable.
In particular, in the Book of Financial Statements, the Statement of Financial Position, Statement of Comprehensive Income, Statement of Cash Flows, Statement of Changes in Equity, and corresponding notes must be recorded, in accordance with what is established in Article 442 of the Code of Commerce and International Financial Reporting Standards (IFRS). The figures recorded in this book must be presented in thousands of United States dollars.

9.2. Tax Books
Legal books must be kept in accordance with current tax laws.

INTERNAL CONTROL APPLIED TO ACCOUNTING RECORDS
Accounting records must contain the necessary detail regarding the characteristics of assets, liabilities, equity, income, and expenses so that all information contained in the different financial statements to be rendered can be clearly derived from them, which will maintain the necessary correlation both among themselves, when applicable, and with the accounting basis. The entity must maintain at all times an auxiliary detail of each of the accounting subaccounts, when the nature of the accounts so requires. Entities will establish internal control systems aimed at reasonably ensuring the reliability of accounting records, as well as the correct integration of operations, in accordance with the internal accounting policies of each entity. Therefore, regardless of the accounts required to form the financial statements, the details deemed necessary for the preparation of the rest of the complementary informational statements will be established, developing an analytical accounting that provides sufficient information for the calculation of costs and returns of different centers, products, business lines, or other aspects of interest for adequate management control.
RECORDING AND ARCHIVING OF ACCOUNTING DOCUMENTATION
Additionally, entities are obliged to keep all administrative books required of them. The operations recorded in them must be backed by sufficient documentation proving the economic fact and complying with what is established in the Code of Commerce. Operations will be recorded as they occur, in such a way as to avoid unnecessary delays. Entities must archive the documentation backing their operations, using the means they consider, provided that such means have all security and control measures. The retention period will be in accordance with what is regulated in the corresponding laws.
CONCEPTUAL FRAMEWORK OF ACCOUNTING
12.1. Generally Accepted Accounting Principles and Standards
Accounting will be governed according to the following precedence:
a) Salvadoran legislation that establishes specific accounting treatments; b) Accounting Standards issued by the Central Bank through its Standards Committee; and c) International Financial Reporting Standards (IFRS), always adopting among the alternatives offered by these Standards the most prudent option and clearly disclosing such situation in the notes to the financial statements, the above always provided that it does not contravene any provision contained in the Accounting Standards issued by the Standards Committee of the Central Bank. (3) Financial entities will apply what is established in the Conceptual Framework of IFRS for the generation of general purpose financial information. The IFRS that entities must apply are the standards and interpretations in Spanish version in force, which have been issued by the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB) and comprise: (3) a) International Financial Reporting Standards (IFRS); b) International Accounting Standards (IAS); c) IFRS Interpretations Committee (IFRIC) Interpretations; d) SIC Interpretations; and e) International Sustainability Reporting Standards. (3) Subsequent to the validity of this Manual, when changes in IFRS are approved or in case of issuance of a new IFRS by the IASB or ISSB, entities may adopt such changes or new standards, provided they do not contradict what is stated in Salvadoran legislation that establishes specific accounting treatments or in the Accounting Standards issued by the Central Bank through its Standards Committee, the latter two prevailing in case of conflicts. (3)

12.2. Criteria for Accounting Recognition or Recognition of Elements
The initial recognition, subsequent measurement, presentation, and accounting disclosure of the elements of financial statements must be carried out following the provisions established in this Accounting Manual, in the regulatory framework or in IFRS, as applicable, attending to the type of transaction performed. Based on the above, for the estimation of expected credit losses for the investment portfolio, entities will use the expected credit losses methodology established in IFRS for financial instruments in the investment portfolio recorded at amortized cost and at fair value through other comprehensive income. Entities, prior to contracting financial derivatives for purposes other than risk hedging, must request the appropriate authorization from the Central Reserve Bank to carry out this type of operations. Likewise, the entity must enter into negotiations of financial derivative instruments only if it fully understands how they work; therefore, the entity must demonstrate that it has at least the internal capacity to value the intended instrument, observing at least the frequency of valuation, valuation methodology, formulas, parameters, and sources to be used; otherwise, it should not enter into negotiations of this type of instruments.

CHAPTER II
ACCOUNTING FRAMEWORK

SECTION I
RECOGNITION OF INTEREST ON ACTIVE CREDIT RISK OPERATIONS

OBJECTIVE

This Section aims to regulate the recognition of interest originated or incurred in active operations.

SCOPE
This Section applies to all active financial operations related to credit risk assets, which imply the incurrence of interest.
RECOGNITION
Interest

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