Approval of the Regulation on the Procedure for Correcting Errors in Financial Statements of Commercial Banks

Resolution of the Board of the Central Bank of the Republic of Uzbekistan, registered on January 21, 2004, registration number 1301

Date of Entry into Force

January 31, 2004

All

November 11, 2021

January 31, 2004

View

Russian Uzbek Uzb Uzb|Russian

Document lost its force on November 11, 2021

[ OKOZ: 1. 07.00.00.00 Legislation on Finance and Credit. Banking Activity / 07.21.00.00 Banking Activity / 07.21.17.00 Accounting and Reporting in Banks] [ TSZ: 1. Economy / Accounting, Statistics and Reporting]

RESOLUTION OF THE BOARD OF THE CENTRAL BANK OF THE REPUBLIC OF UZBEKISTON

On Approval of the Regulation "On the Procedure for Correcting Errors in Financial Statements of Commercial Banks"

[Registered by the Ministry of Justice of the Republic of Uzbekistan on January 21, 2004, registration number 1301]

This resolution loses its force on November 11, 2021, based on the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 17/3 dated July 15, 2021 "On Recognizing Certain Regulatory Legal Acts Adopted by the Central Bank of the Republic of Uzbekistan as Lost in Force" (registration number 3317, August 10, 2021).

Based on Articles 3, 7, and 51 of the Law of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan", the Board of the Central Bank of the Republic of Uzbekistan resolves:

1. Approve the Regulation "On the Procedure for Correcting Errors in Financial Statements of Commercial Banks" attached hereto.

2. The Department of Accounting, Reporting, and Cash Execution of the State Budget (D.A. Oriov) shall submit this Regulation to the Ministry of Justice of the Republic of Uzbekistan for state registration within 10 days.

3. This resolution enters into force on January 31, 2004, after being registered by the Ministry of Justice of the Republic of Uzbekistan.

4. Control over the execution of this resolution is entrusted to the First Deputy Chairman of the Central Bank M.R. Jumagaliev.

Chairman of the Central Bank Board F. MULLAJONOV

Tashkent, November 8, 2003, No. 27/4

APPROVED by the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 27/4 dated November 8, 2003

REGULATION On the Procedure for Correcting Errors in Financial Statements of Commercial Banks

I. GENERAL PROVISIONS

This Regulation is developed in accordance with the Laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" and "On Banks and Banking Activity", and establishes the requirements for correcting errors in the financial statements of commercial banks of the Republic of Uzbekistan (hereinafter referred to as banks) in accordance with International Financial Reporting Standards (hereinafter in the text — IFRS).

The purpose of this Regulation is to establish policies and procedures for correcting errors in the financial statements of banks in accordance with the regulatory documents of the Central Bank and IFRS. The application of this Regulation applies only to financial statements submitted by head banks.

II. DEFINITIONS

1. For the purposes of this Regulation, the following concepts are used:

errors — deficiencies or other misstatements in the financial statements of banks for one or more prior periods identified in the current period and existing, as well as reliable information that could have been used and taken into account in the preparation and presentation of financial statements for these prior periods. In this case, reliable information refers to information that, when correctly used and calculated, provides the possibility of avoiding errors.

The causes of these errors may include: incorrect mathematical calculations, incorrect application of accounting policies, failure to review or misinterpretation of events, intentional misrepresentation of events, as well as fraud;

retrospective (or retroactive) restatement — the correction of errors by recognizing and disclosing corrected information in the restated report as if the error had never occurred.

III. PROCEDURE FOR ACCOUNTING FOR THE CORRECTION OF ERRORS IN BANK FINANCIAL STATEMENTS

2. Banks account for the correction of errors retrospectively. Banks are not allowed to correct errors (related to past or prior periods) in determining profit or loss in the period in which the error is identified.

3. Banks make correcting entries (or entries) to the general ledger for the past year (or years) in which the error(s) were made.

4. If the software for filling out the general ledger does not allow banks to make the correcting entries specified in paragraph 5 of this Regulation, banks make correcting entries in the current period as follows:

a) if the errors affect only the balances of balance sheet accounts in the balance sheet, they are debited and credited to the corresponding accounts of the balance sheet (Appendix 1);

b) if the errors affect both balance sheet accounts in the balance sheet and income statement accounts, the initial balance of retained earnings is debited or credited in connection with the corresponding balance sheet account for the purpose of correcting errors in the income statement for prior periods (Appendix 2);

c) if the errors affect only income statement accounts (without touching any account of the balance sheet), banks reflect the correction of the error by debiting the error amount and crediting the initial balance of retained earnings simultaneously (Appendix 3).

5. In correcting errors, banks prepare a working schedule detailing the error and explaining the necessary correction, which is approved by the bank's management. The working schedule approved by the management is attached to the file (daily documents) as a supporting document for this correcting entry, and one copy is retained for use in preparing financial statements.

IV. IMPACT OF ERRORS ON SUBMITTED FINANCIAL STATEMENTS

6. When preparing comparable financial statements, banks correct errors by restating the comparable information for the period(s) in which the error was made, as if the errors had never occurred.

7. In the retrospective correction of errors related to periods prior to those reflected in comparable financial statements, this error should be reflected by correcting the initial balance of retained earnings of the earliest period in which the error was reflected. Any other information in financial statements reflected for prior periods is restated in the same manner.

8. Information about correcting entries is submitted to the Central Bank of the Republic of Uzbekistan within 30 days after they are made.

Appendix 1 to the Regulation On the Procedure for Correcting Errors in Financial Statements of Commercial Banks

EXAMPLE Concerning Errors Affecting Only the Balance Sheet

Assume:

In 20x1, Bank A identified that a fixed asset with a value of 100 million sum was incorrectly classified as the bank's other private property.

This error occurred because the building, purchased in the sale of rights to property pledged by an insolvent debtor, was not reclassified as construction in progress after the bank changed its intention regarding this building in 20x0 and began its reconstruction for use as a bank building for a new branch.

The following data existed in Bank A's accounting books for 20x0:

Bank's property — 9,000 million sum. Other private property — 360 million sum.

Accounting entries made in 20x1 to correct errors related to 20x0 (in thousands of sum):

Dr Bank's property 100,000 Cr Other private property 100,000

For correct classification and placement of items in the correct position.

Since this error did not affect the income statement, no entries are required for revenues and expenses or for the retained earnings account at the beginning of 20x1.

Impact of Errors on Submitted Financial Statements Balance Sheet of Bank A as of December 31, 20x0

(in thousands of sum)

Items 20x1 20x0 (after restatement)

Bank's property X XXX XXX 9,100,000

Other private property XXX XXX 260,000

Note to Bank A's Financial Statements:

Due to the failure to reclassify fixed assets with a value of 100 million sum in 20x0, they were incorrectly reflected in the "Other private property" item. Accordingly, comparative information for 20x0 has been restated.

Appendix 2 to the Regulation On the Procedure for Correcting Errors in Financial Statements of Commercial Banks

EXAMPLE Concerning Errors Affecting Balance Sheet and Income Statement Accounts

Assume:

In 20x1, Bank A identified that interest income on debt securities was overstated by 300,000 sum in 20x0.

This error occurred due to an incorrect mathematical formula in the software introduced on March 1, 1999, for calculating discount amortization.

The following data existed in Bank A's accounting books for 20x1:

Interest income — 43.4 million sum; Interest expenses — 36 million sum; Other income — 14.6 million sum; Other expenses — 16.5 million sum.

(The above interest income amount for 20x1 was calculated based on the corrected mathematical formula.)

It is assumed that the income (profit) tax rate was 31% in 20x1 and 33% in 20x0. (It is assumed that the bank paid tax on the incorrect addition of 300,000 sum interest income to the taxable income for 20x0. It is also assumed that the tax authorities will not re-collect tax on this amount in 20x1 when the error is corrected.)

The retained earnings balance was 8.6 million sum at the beginning of the period and 10.61 million sum at the end of the period in 20x0.

The income statement submitted for 20x0 had the following form (in thousands of sum):

Interest income 34,400 Interest expenses (29,900) Other income 12,000 Other expenses (13,500) Profit before income tax 3,000 Income (profit) tax (990) Net profit 2,010

Accounting entries made in 20x1 to correct errors related to 20x1:

Method 1 (It is assumed that the bank's software ALLOWS making entries to the previous year's general ledger):

Dr Accounts accounting for interest income (20x0) 300,000 Cr Accounts accounting for discount on securities 300,000

(Correcting the error amount of interest income for 20x0. Reflecting the correction in the 20x0 general ledger also corrects the retained earnings balance at the beginning of 20x1.)

Dr Deferred tax 99,000 Cr Income tax assessment (20x0) 99,000

(Correcting the increased expense amount for tax for 20x0 due to the increase in income amount. This entry also corrects the initial balance of retained earnings for 20x1.)

Method 2. (It is assumed that the bank's software DOES NOT ALLOW making entries to the previous year's general ledger):

Dr Retained earnings — beginning of year 300,000 Cr Accounts accounting for discount on securities 300,000

(Correcting retained earnings for the error amount made in 20x0. Note: This correction has the same effect on the initial balance of retained earnings for 20x1 as applying Method 1.)

Dr Deferred tax 99,000 Cr Retained earnings — beginning of year 99,000

(Correcting the initial balance of retained earnings for 20x1 for the increased expense amount for tax in 20x0. Note: This correction has the same effect on the initial balance of retained earnings for 20x1 as applying Method 1.)

Impact of Errors on Submitted Financial Statements

In this example, data from the example in Appendix 2 of this Regulation is used. Below is the impact of error correction on submitted financial statements:

Income Statement of Bank A for 20x1 (in thousands of sum)

Items 20x1 20x0 (after restatement)

Interest income 43,400 34,100 Interest expenses (36,000) (29,900) Other income 14,600 12,000 Other expenses (16,500) (13,500) Profit before income tax 5,500 2,700 Income (profit) tax (1,705) (891) Net profit (3,795) 1,809

Schedule of Retained Earnings of Bank A for 20x1 (in thousands of sum)

Items 20x1 20x0 (after restatement)

Retained earnings balance at the beginning of the period 10,610 8,600 Correction of material errors (net of 99,000 income tax deduction) (201)

Restated retained earnings balance 10,409 8,600 Net profit 3,795 1,809 Retained earnings balance at the end of the period 14,204 10,409

Note to Bank A's Financial Statements:

Due to a mathematical error, interest income was overstated by 300,000 sum in 20x0. Accordingly, comparative information for 20x0 has been restated.

Appendix 3 to the Regulation On the Procedure for Correcting Errors in Financial Statements of Commercial Banks

EXAMPLE Concerning Errors Affecting Only Income Statement Accounts

Assume:

In 20x1, Bank A identified that income of 100,000 thousand sum from operating lease received in 20x0 was incorrectly classified as interest income.

This error occurred due to the incorrect application of accounting policy for reflecting income from operating leases.

The income statement submitted by the bank for 20x0 had the following form, in thousands of sum:

Interest income 34,400 Interest expenses (29,900) Other income 12,000 Other expenses (13,500) Profit before income tax 3,000 Income (profit) tax (990) Net profit 2,010

Assume that interest income and income from operating leases are subject to income (profit) tax at the same rate.

Accounting entries made in 20x1 to correct the error related to 20x0:

Method 1 (It is assumed that the bank's software ALLOWS making entries to the previous year's general ledger):

Dr Accounts accounting for interest income (20x0) 100,000 Cr Income from leasing bank property (20x0) 100,000

(Correcting the error amount of interest income for 20x0. Reclassification of income does not change the retained earnings balance at the beginning of 20x1.)

Method 2 (It is assumed that the bank's software DOES NOT ALLOW making entries to the previous year's general ledger):

Dr Retained earnings — beginning of year 100,000 Cr Retained earnings — beginning of year 100,000

(This correction has the same effect on the initial balance of retained earnings for 20x1 as applying Method 1.)

Impact of Errors on Submitted Financial Statements Income Statement of Bank A for 20x1

(in thousands of sum)

Items 20x1 20x0 (after restatement)

Interest income 43,400 34,300 Interest expenses (36,000) (29,900) Other income 14,600 12,100 Other expenses (16,500) (13,500) Profit before income tax 5,500 3,000 Income (profit) tax (1,705) (990) Net profit (3,795) 2,010

Note to Bank A's Financial Statements:

Due to the incorrect application of accounting policy for reflecting income from operating leases, interest income was overstated by 100,000 sum in 20x0. Accordingly, this amount of income was reclassified as other income, and comparative information for 20x0 was submitted taking this reclassification into account. This error did not affect the amount of retained earnings in any period.

(Collection of Legislative Acts of the Republic of Uzbekistan, 2004, No. 3, Article 37)