Are you IFRS 9 ready?

Ewan Dunbar our consultant managing the role
Posting date: 5/11/2016 12:33 PM
By 1 January 2018, the International Accounting Standards Board will have introduced IFRS 9 as a mandatory measurement model for financial assets. Due to this, I thought I would break down what this means for business and how it will impact recruitment trends over the next one to two years.

What is IFRS 9?

IFRS 9 is an International Financial Reporting Standard which is responsible for the accounting of financial instruments. It includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. Since July 2009, IFRS 9 has been implemented in various stages whereby the IASB has been adding to the standard as each stage has been completed.

What were the downfalls of IAS 39?

IAS 39 was first implemented by the IASB in 1984 and its predominant aim was to ensure there were rules for the reporting of the financial instruments ensuring that companies would then present them in a way which was consistent, but also transparent. However, following a G20 summit in 2009 after the financial crisis of 2008, it was decided that IAS 39 needed to be changed due to the fact there were too many exceptions and inconsistencies and the project to replace it went ahead imminently.

IAS 39 was often considered to be very backward looking, meaning that it failed to give a true and fair view the financial position of a business. Perhaps more crucially was its inability to respond fast enough to the recognition of credit losses, which was evident in the financial crisis of 2008.

IFRS 9 at a glance

The main difference between IAS 39 and IFRS 9 is that instead of loan provisioning using an incurred loss model, they will be using an expected loss model. Despite the Financial Account Standards Board (USA) using a single measurement model, the IASB decided that a three-stage model would be more appropriate.

Stage 1 will include financial instruments which have had no noticeable increase in Credit Risk since their initial recognition or that have low credit risk.

Stage 2 will include financial instruments which have had a noticeable increase in Credit Risk since recognition, however, does not have evidence which suggests that they have been impaired.

Stage 3 will include any financial instruments which have had a noticeable increase in Credit Risk since recognition and have evidence that they are impaired.

In the table below I have compared IFRS 9 in its three stages to how things would look if IAS 39 used the same technique.

Will IFRS 9 eliminate the possibility of a repeat of 2008?

In my opinion, the simple answer is no. Evidence, without a doubt, suggests that under excess financial pressure, banks should be able to withstand it without any major implications. However, despite this, I am not convinced that any reporting standard put in place would be able to prevent another crash.

Nonetheless, it is important that all financial institutions become compliant by the impending 1 January 2018 deadline, meaning financial reporting managers who can work on the implementation of IFRS 9 are now in high demand.

Due to the significant impact of this change, we know that those candidates with strong ACA, CIMA and ACCA backgrounds, who can efficiently manage key programmes, will shape how well the implementation of IFRS 9 takes place for a company over the next two years.

Are you such a candidate and what is your experience of the changes that are taking place? Will these new Standards be robust enough to protect institutions and the public?

As a business, are you ready or on track to have these Standards fully implemented in time for the 2018 deadline? If, from a recruitment perspective you need more advice or insight surrounding how we can help you get your company IFRS 9 ready, get in touch with me - T: (020) 8408 6070 E: info@harnham.com

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