In the backdrop of the buzz that IFRS 9 has generated in the banking industry, and to demystify IFRS 9 principles, Aptivaa is pleased to launch a series of blogs to apprise readers of some of the key aspects related mostly to impairment modeling, for compliance with the new accounting standards, as well as to have a conversation with the readers about the challenges that banks are facing in their implementation efforts. On 24 July 2014, IASB issued the fourth and final version of its new accounting standard – IFRS 9 Financial Instruments, which replaces most of the rule-based standards of IAS 39 with principle- based guidance. IFRS 9 is built on a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. The fundamental shift from IAS 39 to IFRS 9 standards is “Incurred Loss Approach” to “Forward-looking Expected Loss Approach” for impairment assessment. In the past, accountants were not comfortable with accounting based on “expected” outcome unless they have “sufficient proof” to believe so; due to which loan loss provisioning was 'too little, too late'. The fundamental responsibility of accounting is to ensure “True and accurate Representation” of accounts in P&L statement. Given this background, IFRS 9 is a fundamental shift in mindset. The Standard also includes an improved hedge accounting model to improve the link between the economics of risk management with its accounting treatment. From IAS 39 to IFRS 9 ISSUE 01 Contact: [email protected]| www.linkedin.com/company/aptivaa Website: www.aptivaa.com | Page 1
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In the backdrop of the buzz that IFRS 9 has generated in the banking industry, and to demystify IFRS 9
principles, Aptivaa is pleased to launch a series of blogs to apprise readers of some of the key aspects
related mostly to impairment modeling, for compliance with the new accounting standards, as well as
to have a conversation with the readers about the challenges that banks are facing in their
implementation efforts.
On 24 July 2014, IASB issued the fourth and final version of its new accounting standard – IFRS 9
Financial Instruments, which replaces most of the rule-based standards of IAS 39 with principle-
based guidance. IFRS 9 is built on a logical, single classification and measurement approach for
financial assets that reflects the business model in which they are managed and their cash flow
characteristics.
The fundamental shift from IAS 39 to IFRS 9 standards is “Incurred Loss Approach” to “Forward-looking
Expected Loss Approach” for impairment assessment. In the past, accountants were not comfortable
with accounting based on “expected” outcome unless they have “sufficient proof” to believe so; due to
which loan loss provisioning was 'too little, too late'. The fundamental responsibility of accounting is to
ensure “True and accurate Representation” of accounts in P&L statement. Given this background, IFRS
9 is a fundamental shift in mindset.
The Standard also includes an improved hedge accounting model to improve the link between the
economics of risk management with its accounting treatment.