With the deadline for compliance with IFRS9 approaching bankers and insurers must start preparing themselves now. Even if the underlying principles of IFRS9 make good sense, it’s going to be particularly difficult to roll out this new standard.
The new International Financial Reporting Standard 9 covers three main topics: a new approach to classifying and measuring financial assets according to the entity’s business model, a new calculation method for depreciation of financial assets based on different statistical criteria according to asset category, and, finally, hedge accounting. In 2018, IFRS9 will replace IAS 39 for financial instruments.
Improper credit risk management largely contributed to the financial crisis. The new standard involves a new recognition model based on expected credit losses; it requires greater transparency when reporting credit risk and higher equity to cover losses linked to credit risk. In the world of IFRS9, financial outlook plays an important role when assessing banking customers’ solvency. According to IFRS9, a bank must manage and assess significant rises in credit risk for all financial instruments, measured according to expected loses over 12 months.
IFRS9 will have substantial impacts: A potentially higher cost of equity and a lower return on assets will put revenues under pressure. Organisations will be obliged to immediately recognise a certain amount of expected loses and reassess this at each closing; this in turn may considerably lower capital. Furthermore, the new standard requires enhanced cooperation between the credit risk management and accounting departments and toughens requirements in terms of information submitted. All of this calls for new and complex accounting systems based on statistical models.
We can assess IFRS9’s overall impact on your organisation, and help you to define and implement an appropriate response, using our pre-integrated solutions or our services based on your existing systems.
Those who come out on top will be those who have been able to anticipate organisational, procedural, technological, and governance changes to establish the easiest and most economical transition programme.
- Full solution including consulting and related services
- Loans, simulations, calculation and recognition of provisions fully centralised for banks and their subsidiaries
- Pre-integration of accounting models
- Recognition via our Report offer on the European Banking Authority’s FINREP, compliant with the IFRS9 standard.