Banks favour IFRS 9

IMPAIRMENT ACCOUNTING standard IFRS 9 is favoured by the majority of banks, which believe it is an improvement on the old UK standard IAS 39.

By the end of this year more than half will have begun implementation of the yet-to-be-finalised standard, and a survey by Deloitte shows this figure will rise to almost 90% by 2012.

The standard focuses on loan losses and when they are accounted for. During the financial crisis, the incurred loss model was found wanting and stakeholders called for a move to an expected loss model, in the hope that this would provide forewarning and prevent a similar disaster unfolding in future.

Global standard setters the IASB and US peers the FASB are jointly working on the project, which will form part of IFRS 9 Financial Instruments when completed.

IFRS 9 global leader at Deloitte, Mark Rhys, called impairment accounting “the single most significant area of change affecting the financial statements of major banking groups in the foreseeable future”.

However, banks have some reservations about the standard; more than half fear it will lessen comparability between institutions, and around 26% said it would reduce the usefulness of financial statements.

Rhys said banks believe regulators will benefit most from the extra detail provided, concluding: “It was also found that it may be difficult for those without technical accounting backgrounds to understand how the changes affect loan loss accounting and, consequently, loan pricing.”

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Fiona Westwood of Smith and Williamson.