KPMG has commented following the International Accounting Standards Board’s (IASB’s) issuance of the fourth and final version of its new standard on financial instruments accounting — IFRS 9 Financial Instruments. This completes a project that was launched in 2008 in response to the financial crisis.
The new standard includes revised guidance on the classification and measurement of financial assets, including impairment, and supplements the new hedge accounting principles published in 2013.
Chris Spall, KPMG’s global International Financial Reporting Standards (IFRS) financial instruments leader, said: ‘The new standard is going to have a massive impact on how banks account for credit losses on their loan portfolios. Provisions for bad debts will be bigger and are likely to be more volatile.
‘After long debate about this complex area, it is good that we finally have a complete standard and that the implementation effort can begin in earnest. We had hoped that the IASB and the US FASB [Financial Accounting Standards Board] could have achieved a single converged solution for banks and other entities globally, but this hasn’t been possible.
‘Having different rules under US GAAP [generally accepted accounting principles] and IFRS will mean a lack of comparability for investors between the results of banks reporting under the different frameworks and increased costs for those banks that have to prepare figures under both accounting frameworks.’
Colin Martin, head of KPMG UK assurance services, banking, said: ‘Adopting the new rules is going to mean a lot of time, effort and money for banks.’ He added that a major issue for banks and investors in banks will be how adoption of the new standard will affect regulatory capital ratios. ‘Banks will need to factor this into their capital planning and we expect that users will be looking for information on the expected capital impacts.’
Insurers will also be significantly affected by IFRS 9. Joachim Kölschbach, KPMG’s global IFRS insurance leader, said: ‘Insurers have to plan for adopting new standards on both financial instruments and insurance contracts over the next few years. The overall effect cannot be assessed until the insurance standard is finalised over the next 12 months, but we can expect a sea-change in financial reporting for most insurers.’
Spall added: ‘Other corporates should not automatically assume that the impact of the classification and measurement and impairment requirements of the new standard will be small, as it depends on the exposures they have and how they manage them.
‘We expect that planning for IFRS 9 adoption — including implementation of the new hedge accounting requirements published in 2013 — will be an important issue for corporate treasurers and accountants generally.’