Banks respond well to IFRS

There is still a way to go in the achievement of greater consistency and
comparability in a number of areas of financial reporting for banks applying
International Financial Reporting Standards, a new report has revealed.

The study by PricewaterhouseCoopers – that reviewed the annual reports and
accounts of 20 of the leading global banks to assess the extent to which the
introduction of IFRS affected way banks report their results – reveals that the
major banks responded well to the challenges but implementation has not been
without surprises.

The report found that although disclosures were generally longer in some key
areas such as hedge accounting, banks adhered to disclosure requirements rather
than attempting to set the agenda.

A clear priority that emerged is that of implementing hedge accounting at a
level that minimised the potential volatility arising from the hedge accounting
requirements introduced by IAS 39.

The IAS39 changes to the basis for calculation of loan impairment provisions
are expected to cause additional income volatility in the future and banks will
need to address the ramifications as a key part of their market communications
The new rules have also potentially reduced the consistency between financial
reporting and risk management.

In addition, IFRS has led to significant changes in the measurement and
presentation of investment securities.

PwC partner, Simon Gealy, said the implementation of IFRS in benign financial
markets, combined with combined with favourable global economic conditions,
resulted in less volatility than originally expected in the first set of
financial statements infused with fair value accounting.

‘This begs the question of whether we will see a future increase in
volatility as the markets change and whether this will expose any frailties in
the quality of the underlying implementation of IFRS,’ Gealy said.

The report also noted that statements were delivered without any real delay.

Related reading