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August 2, 2011

Banks expect IFRS 9 to improve financial statements

Banking groups believe IFRS 9 impairment accounting proposals will improve financial statements in comparison to those prepared using current IAS 39 rules, according to a survey by Deloitte.

Deloitte’s global banking IFRS 9 impairment survey, also found many banking institutions have already laid the framework for meeting the proposed effective date of 2015 with more than half starting their implementation by the end of 2011. But the majority of respondents (about 90%) will have started by 2012.

The new impairment accounting rules, which are being jointly developed by the International Accounting Standards Board and the US Financial Accounting Standards Board, will shift away from an incurred loss model to an expected loss model and the changes will form part of IFRS 9 replacing IAS 39.

The survey has found industry scepticism still remains as more than a quarter of banking groups are unconvinced the changes will make financial statements more useful and more than 50% believe it will result in a lack of comparability between institutions.

“While the rule changes are designed to increase transparency around loan loss provisioning, survey respondents indicated it is likely regulators would find the detail most useful,” Deloitte global IFRS 9 banking leader Mark Rhys said.

 “It was also found that it may be difficult for those without technical accounting backgrounds to understand how the changes affect loan loss accounting and, consequently, loan pricing.”

The Big Four firm surveyed 56 major banking groups across Europe, Middle East & Africa, Asia Pacific and North America including seven of the top 10 global banking groups measured by total assets.

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