In just over a year, the new financial instruments and revenue standards – IFRS 9 and IFRS 15 – will become effective.
I am pleased that many of our clients have now started their implementation projects. But with less than 12 weeks to go until the end of this calendar year, it’s time to start thinking about communication, and the disclosures you’re going to have to make this year and next.
Firstly, investors will want to know two things: are you on top of your implementation project and what is the impact going to be on your key performance metrics. Looking further down the line, they’ll also want to know whether these impacts are temporary – i.e. as a result of transition provisions – or permanent.
For banks in particular, investors will be keenly focused on what the impacts on regulatory capital will be.
This is also high up the agenda of the market regulators, who are paying close attention. For example, the European regulator, ESMA, has recently set out its expectations for 2016 and 2017 financial statements.
ESMA expects calendar year-end companies to start with relatively simple, high-level disclosures in this year’s financial statements. It would like to see quantified impacts disclosed as early as the interim reporting season of 2017. It remains to be seen for how many companies this will be feasible, but ESMA’s sense of urgency is clear.
ESMA expects the impacts to be quantified by early 2018 at the latest – i.e. at the time the 2017 financial statements will be released.
This illustrative timeline sets out the detail.
Some of you may be thinking: ‘So what? I’m not in Europe, so ESMA isn’t my regulator.’
Well, while that may be true, securities market regulators across the globe do talk to each other – e.g. through IOSCO. Other regulators are therefore likely to have similar expectations. And with accounting for financial instruments and revenue under US GAAP also changing, it’s definitely worth keeping an eye on how practice in this area develops.
So, if your company is based outside Europe, you may find that ESMA’s statement is a useful guide when considering which disclosures you include in your forthcoming interim and annual financial statements.
Regulators’ expectations aside, it’s worth remembering that IAS 8 already requires companies to make additional disclosures when they change accounting policies due to the adoption of new standards.
And banks applying IFRS 9 also need to consider the principles and recommendations issued by the Enhanced Disclosure Task Force, which is also encouraging a gradual and phased approach to disclosure in the run up to the 2018 implementation date.
Our website contains a wealth of information on all these matters. And our Illustrative disclosures give examples of how your IFRS 9 and IFRS 15 disclosures could look in 2016. Visit our Revenue, Financial Instruments and Disclosures hot topics pages to find out more.
Comments? Questions? Join the conversation on KPMG's IFRS showcase page on LinkedIn.
Mark Vaessen is KPMG’s global IFRS leader.
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