Improvements by IFRS 9 accounting standard

On July 24th 2014 the IASB has issued the final version of the international accounting standard IFRS 9 financial instruments replacing the existing IAS 39 standard. The new Standard will come into effect on January 1st 2018 with earlier application permitted.

The package of improvements introduced by IFRS 9 is based on a three phase model:

  • Phase I: Classification and Measurement

According IFRS 9 the categorisation and measurement of financial instruments is based on a single, principle-based approach that is driven by cash flow characteristics and the business model in which an asset is held.        

   

  • Phase II Impairment

As part of IFRS 9, the IASB has introduced a new, expected-loss impairment model that will require more timely recognition of expected credit losses. Compared to IFRS 9, the existing model in IAS 39 (an ‘incurred loss’ model) delays the recognition of credit losses until the occurrence of the default. Thus the risk provisioning is applied earlier and in adequate amount in the balance sheet to highlight the economic impact.

 

  • Phase III Hedge Accounting

IFRS 9 introduces a substantially-reformed model for hedge accounting with significant improvements, principally by aligning the accounting more closely with risk management. Accordingly the designation rules for a financial instrument and its hedging transaction are adjusted to provide more flexibility to achieve this goal.

 

The changes of the categorisation and measurement regulations result in adjustments and restructuring in the IT system landscape of a bank, in particular in the AFI module of SAP Bank Analyzer. Especially the application of risk provisioning increases complexity and effort. gwantec supports the conception, design and implementation of the changes and helps you to achieve the transition to IFRS 9.