53. This paper defines transparency as public disclosure of reliable and timely information that enables users of that information to make an accurate assessment of a bank's financial condition and performance, its business activities, and the risks related to those activities. In this section, critical qualitative characteristics of information that contribute to bank transparency are further elaborated. These characteristics ⁷ are:
    • comprehensiveness;
    • relevance and timeliness;
    • reliability;
    • comparability;
    • materiality.
    (a) Comprehensiveness

54. To enable market participants and other users of information to make meaningful evaluations of banks, information should be comprehensive. This often implies the aggregation, consolidation and assessment of information across a number of activities and legal entities.

55. Where institutions undertake business activities that fall under the jurisdiction of different supervisors, or where certain affiliates are not supervised, supervisors should discuss with regulated firms how best to obtain information that provides a comprehensive, timely picture of the risks associated with their overall activities. Bank supervisors should attempt to obtain information about these activities on a consolidated basis, while recognising the legal distinctions among subsidiaries and the need to receive summary information about major business activities and key entities within a consolidated banking group.
    (b) Relevance and timeliness

56. To be useful, information must be relevant to the decision-making needs of users. Information is relevant to market participants when it helps them assess the expected risks and returns of investing in, lending to, or having other exposures to a bank and its future financial performance and position. Information is relevant to supervisors when it helps them assess the safety and soundness of a bank's operations.

57. To be relevant, information also needs to be timely. Information should be provided with sufficient frequency and timeliness to give a meaningful picture of an institution, including its risk profile and risk management performance.
    (c) Reliability

58. Information must also be reliable. In particular, information should faithfully represent that which it purports to represent, or could reasonably be expected to represent. Further, to be reliable it must reflect the economic substance of events and transactions and not merely their legal form, be verifiable, neutral (i.e., free from material error or bias), prudent, and complete in all material respects. Completeness within the constraints of materiality and cost is of particular importance, since an omission can cause information to be false or misleading.

59. In some instances, banks may have to balance the interests of relevance and reliability. For example, forward-looking information, such as earnings predictions, may score highly on relevance but lack reliability, while the reverse is more likely to apply to historical information. Moreover, given the fact that banks are now able to rapidly change their risk profiles, timeliness is critical for relevance. However, one of the main methods for ensuring reliability - external audit - tends to delay the release of information.
    (d) Comparability

60. Another essential characteristic of information is comparability. Supervisors, market participants and other users need information that can be compared across institutions and countries, and over time. This implies that a bank should use consistent accounting policies and procedures from period to period, and uniform measurement concepts and procedures for related items. Changes in accounting policies and procedures should not be made unless they can be justified as being more appropriate, e.g., because of a change in accounting standards. However, when accounting policies are changed, these changes, and their effects, should be disclosed. Comparability in information across banks and across countries enables users to assess the relative financial position and performance of banks against other banks. Comparability over time is necessary for the identification of trends in a bank's financial position and performance. To facilitate the identification of trends, financial reporting should provide comparative figures in respect of one or more previous periods for numerical information.
    (e) Materiality

61. Banks' financial reports should present or disclose each material item separately. Information is material if its omission or misstatement could change or influence the assessment or decision of a user relying on that information. Information that is not disclosed because it is immaterial may, nevertheless, be relevant for internal risk management purposes and in supervisory assessments. Information of this nature should be available within regulated firms and their material affiliates, and should be accessible to supervisors.

Footnote(s):

7. These concepts are discussed in accounting literature and national and international accounting guidance. For example, International Accounting Standard (IAS) No. 1 (revised 1998), IASC Framework for the Preparation and Presentation of Financial Statements, Canadian Institute of Chartered Accountants (CICA) Handbook Section 1000 on Financial Statement Concepts, UK Accounting Standards Board's Exposure Draft Statement of Principles for financial reporting, U.S. Financial Accounting Standards Board's (FASB) Statements of Financial Accounting Concepts No. 2 and 5, and certain provisions in the EU Accounting Directives.