The new financial instruments standard – effective from 1 January 2018 – is proving to be a momentous accounting change for banks.
As many of the larger banks have already found, its impacts are wide-ranging and changes to systems and processes are often necessary.
If you haven’t made a start already, time is running out.
IFRS 9 introduces a new forward-looking impairment model, requiring banks to provide for expected credit losses (ECLs).
The ECL model is more complex and significantly more subjective. Application of the new model is not prescriptive and there are a range of approaches and outcomes.
Banks will need to be able to make robust estimates of ECLs and determine when significant changes in credit risk occur – for example, by assessing external data and predicting future conditions.
Classification of financial assets is based on the contractual cash flows and the business model for managing those assets.
This new principles-based approach will require judgement to ensure that financial assets are classified appropriately.
Banks may choose to switch to the IFRS 9 hedging model or continue to hedge in accordance with IAS 39.
The new model is more principles-based and is aligned more closely with risk management strategies. It may offer some simplifications to hedge accounting but will require a more judgemental approach when assessing qualifying, rebalancing and discontinuing hedge accounting.
Read IFRS 9 for banks to understand how you might be affected, and the actions you may need to take. It highlights how our cross-functional team of experts can help you with the accounting and operational challenges of the new standard.
Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.
For KPMG’s most recent publications on IFRS 9, visit our IFRS – Financial instruments hot topics page.
And visit our IFRS for Banks hot topics page for the latest on IFRS developments that directly impact banks, and the potential accounting implications of regulatory requirements.
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