This most sensitive matter must be resolved together with the CNB in order to arrive at realistic portfolio values. In classification, we apply international accounting standards, taking Croatian National Bank regulations into account. The main CNB criterion is repayment period but the international accounting standards also consider other criteria based on accounting policies and management performance, which should be consistent from one period to another. This led to the third problem raised at the meeting, which is the increasingly frequent disputes between banks and the tax authorities. As auditors, we seek as rigorous a classification of risky assets as possible, but in most cases, the tax authorities dispute such a classification because more risk means less profit and less tax.
High risk shifts a bank's tax liability to the next period and that raises problems.
This is a legal jungle in Croatia. An auditor must observe national regulations but the Croatian Accountancy Act directly adopts the international accountancy standards. Alongside this, we have the Banks and Savings Institutions Act as a national law. Hence, the general national accountancy regulations and the banks and savings institutions regulations do not have completely identical criteria but both regulate the financial reports of banks. The CNB is changing its criteria which are to come into use this year for classifying risky assets.