IFRS 9 for corporates – as relevant as for banks?

IFRS 9 for corporates – as relevant as for banks?

But will IFRS 9 even have the same relevance for corporate clients as it currently has for clients in the financial sector or the insurance industry?

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The existing accounting standard for financial instruments, IAS 39, will be superseded by the new IFRS 9 "Financial Instruments" with effect from 1 January 2018. EU endorsement is expected in the second half of 2016, and the new accounting provisions are largely required to be applied retrospectively.

But will IFRS 9 even have the same relevance for corporate clients as it currently has for clients in the financial sector or the insurance industry?

If the results of the first impact analyses and implementation projects at Corporates are anything to go by, the impact of IFRS 9 on clients' financial statements and the necessary data availability and year-end closing processes will be different, but no less extensive.

Companies often assume that IFRS 9 will largely only be relevant for companies that conduct derivative transactions and hedge accounting. However, this assumption is fundamentally incorrect.

Looking at the asset side of a typical corporate balance sheet, the items affected by IFRS 9 are immediately evident. IFRS 9 applies to all financial instruments, i.e. including cash and cash equivalents, trade receivables, loans and other financial assets. When the scope of the IFRS 9 impairment provisions is added, the standard also encompasses contract assets, lease receivables, loan commitments and financial guarantees, for instance. If local IFRS financial statements are prepared, intercompany transactions are also subject to the provisions of IFRS 9.

But what is the expected implementation cost of an IFRS 9 project over time? A graphical presentation of the consumption of resources across the individual project phases of IFRS 9 implementation results in the following pattern as an example.


Source: KPMG AG Wirtschaftsprüfungsgesellschaft, 2016

The implementation horizon of more than one year is due to the need for cooperation between Group Accounting, Group Treasury, Executive Management, Customer Credit Risk Management, Tax and, in particular, IT. With regard to the necessary adjustments to the IT systems in particular, clients are strongly recommended to ensure that the required IT resources are registered in good time. The Treasury Management systems will have to be able to perform significantly more complex calculations and new reclassification routines, while direct adjustments will have to be made to the ERP systems so that they can handle new accounts, charts of accounts and posting routines.

The data requirements of the new impairment provisions present a particularly big challenge. Without extensive data on historical loss experience and supplementary forward-looking data, it will be largely impossible to properly implement accounting for expected credit losses using the new expected credit loss model.

As such, clients are recommended to ensure as soon as possible that corresponding data histories are available or can be prepared in a timely manner in order to achieve IFRS 9 compliance from 1 January 2018.

Source: KPMG Corporate Treasury News, Edition 57, July 2016
Author: Ralph Schilling, Senior Manager, Finance Advisory, rschilling@kpmg.com

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