Public disclosure relating to financial institutions may derive from several sources. The agencies responsible for the regulation and supervision of the institutions typically prescribe public disclosure designed to allow creditors and other participants in the financial markets (e.g. rating agencies) to evaluate and play a role in monitoring institutions. Where the shares or debt of the institution are traded on regulated securities markets, the rules of those markets also will prescribe certain public disclosures. Companies laws can be another sources of disclosure requirements.

Supervisory reporting requirements are designed for submission only to supervisory authorities, and are an integral component of the supervisory process. They will typically provide a greater level of detail, and address more issues, than do public disclosure requirements. Often, certain portions of the supervisory reporting requirements serve as the public disclosure requirements mandated by the supervisors.

Securities market and companies law disclosure requirements typically are based on the generally accepted accounting principles (GAAP) applicable to all firms in the country. In some countries, local GAAP establishes specific requirements applicable to financial institutions. Nonetheless, GAAP often produces results that are deemed as either misleading or insufficiently conservative by the agencies responsible for the supervision of those institutions. 52/ For purposes of supervisory disclosure requirements, these agencies prescribe supplementary accounting principles, often referred to as regulatory accounting principles (RAP), which in turn may influence the evolution of GAAP for financial institutions. Supervisory reporting requirement almost always are based on RAP.

In the context of financial conglomerates, the authorities must assess local GAAP, as well as existing RAP, in terms of their consequences for transparency. GAAP may produce insufficient results, and RAP, often adopted independently by different supervisory agencies, may not have remedied the shortcomings.

Local GAAP may offer insufficient treatment of loss provisioning, asset and liability valuation. recognition of income and expense, deferral of gains and losses, the inclusion and amortization of intangibles, and the treatment of off-balance sheet items such as derivatives. RAP may have been established by the authorities to address such issues. In the conglomerate context, the authorities will need to determine the extent to which to harmonize accounting principles such as these that are applicable to different types of financial institutions. Harmonization would serve to promote transparency, ensure comparability among the financial statements of different financial institutions and conglomerates, and create a more level playing field among different types of institutions, and conglomerates conformed in different structures. In practice, the adoption of completely identical principles for all financial entities may not be necessary. Rather, the authorities could harmonize the differing principles to the extent practical, and provide for adequate disclosure of remaining differences.

Local GAAP may define the scope and method for the accounting consolidation of related entities, but may not result in sufficiently conservative treatment for supervisory purposes (i.e. supervisory reporting and supervisor-mandated public disclosure). GAAP may not require consolidation of non-majority owned entities, but rather may permit equity method or historic cost treatment of such investments in other group member financial entities. The authorities therefore will likely need to define RAP that establishes more appropriate standards regarding the method and scope of consolidation of financial groups. Requiring all entities engaged principally in financial services within the group to be included in the scope of full accounting consolidation would be the most comprehensive means by which to promote conglomerate transparency. Full consolidation would require the offsetting of debts and claims between consolidated entities, the elimination of income and expenses relating to transactions between consolidated entities, and the elimination of profits and losses resulting from transactions between consolidated entities that are included in the book value of any consolidated entity's assets. 53/

The authorities might provide for certain exceptions to the requirement that all group-related financial entities be included in the scope of such consolidation. For example, where a majority of the voting rights of a financial entity are exercised by parties not otherwise associated with the group, and where there is limited overlap among directors and no common management. authorities might permit that the group's investment be accounted for under the equity method of accounting. Exceptions of this nature might be granted on a case by case basis, and be revoked should supervisory concerns regarding contagion, transparency or autonomy arise. 54/ Should the absence of the necessary accounting techniques preclude full accounting consolidation of all financial services entities within the group, RAP should provide for footnote disclosures of the effects of non-consolidated entities (e.g. the substance of transactions not eliminated in consolidation) .

The authorities should establish mechanisms to promote the accuracy of financial reporting and disclosures in the conglomerate context. While the supervisors themselves may play a role, primary responsibility for accurate reporting should rest with the directors and management, and internal and external auditors. Authorities should consider requiring that all group financial entities be audited by a single external auditor. Alternatively, authorities should provide for the designation of a lead auditor with explicit responsibility for the veracity of group-wide reporting and disclosure. Authorities also should mandate the use of a uniform audit date for all group financial entities.