By Steffen Müller
The International Accounting Standards Board (IASB) has issued the final version of the standard on financial instruments accounting – IFRS 9 Financial Instruments.
The project was launched in 2008 in response to the financial crisis and aimed at improving IAS 39 Financial Instruments: Recognition and Measurement so that companies’ accounts give a better picture of a business’ financial health.
IFRS 9 is a package of reforms to financial instruments accounting encompassed in one standard, which includes revised guidance on the classification and measurement of financial assets, a new impairment model and introduces a reformed approach to hedge accounting.
At the core of the set of reforms introduced by IFRS 9 is the change of the impairment model for how companies recognise losses. Banks will now have to recognise in their balance sheet the losses that have occurred as well as the ones expected in the future.
"The reforms introduced by IFRS 9 are much needed improvements to the reporting of financial instruments, are consistent with requests from the G20 and will enhance investor confidence in banks’ balance sheets and the financial system as a whole," IASB chairman Hans Hoogervorst said.
Deloitte lead financial instruments partner Andrew Spooner said: "IFRS will affect all sectors though the introduction of an expected loss model for loan loss provisioning, but will impact banks most."
However according to ICAEW head of financial reporting faculty Nigel Sleigh-Johnson, IFRS 9 will also have an impact beyond the financial services sector: "All companies holding financial assets such as loans and bonds, trade debtors and lease receivables will have to consider the new requirements and there will be considerable costs involved in meeting them."
At the UK Financial Reporting Council (FRC) executive director of codes and standards Melanie McLarens said the UK FRC was pleased with the improved standard and would work to influence its endorsement in Europe.
While the accountancy profession welcomed the publication of the new standard describing it as a milestone, some raised concerns with regard to divergences between IFRS and US General Accepted Accounting Standards (US GAAP). The IASB and the Financial Accounting Standards Board (FASB) have not found a common ground to converge IFRS 9 with US GAAP.
"Having different rules under US GAAP and IFRS will mean a lack of comparability for investors between the results of banks reporting under the different frameworks, and increased costs for those banks that have to prepare figures under both accounting frameworks," KPMG global IFRS financial instruments leader Chris Spall said.
Spall was also critical of the short transition period for full implementation of IFRS 9 by 1 January 2018.
"In many jurisdictions, including the European Union, companies will not be able to adopt the new standard until it is legally endorsed or permitted by regulators. Given the significance of the standard to the financial services sector, the road to endorsement may be longer and more winding than usual," he said.
Spall comments echoed a survey conducted by Deloitte and published earlier this year into the implementation of IFRS 9. More than a third of the 54 banks surveyed have not yet started the implementation of IFRS 9, according to Deloitte.