The New Standard, Classification, Impairment and Implementation Challenges

Agenda Program
divider graphic
Prague, NH Hotel Prague
divider graphic

Key points / questions answered:

What is IFRS 9, where does it come from and what is its purpose?
What are the principles for classification and measurement of financial instruments?
How to approach and implement impairments under IFRS 9?
How calculate 12-month and lifetime Expected Credit Losses?
What kind of leverage can be expected from Basel 3?
How to deal with the technological challenges resulting from IFRS 9 implementation?
The purpose of this seminar is to introduce you to the principles of IFRS 9, the new accounting standard for financial instruments, to be implemented by January 1st, 2018 at the latest. These principles include a reviewed classification and measurement of financial instruments, a new forward-looking assessment of impairments and an improved approach to hedge accounting.

We start with a brief history of accounting, the creation of the International Accounting Standard Board, the International Financial Reporting Standards, IAS 39 and IFRS 9.

We then take a closer look at IFRS 9 phase 1 that addresses the questions of financial instruments classification and measurement. As compared with the current IAS 39, the new classification restricts significantly the types of assets that can be amortized. As the other two asset classes require fair or market value accounting, this raises questions of valuation and issues of P&L volatility.

After this, we turn to the phase 2, impairment. In the past, concerns have been raised about "too little, too late" provisioning for loan losses. The new expected credit loss model for the recognition and measurement of impairments aims to address these concerns, and accelerates the recognition of losses by requiring provisions to cover both already-incurred losses (like the current IAS 39) AND future expected losses. This new approach will significantly increase banks provisioning levels and reduce their solvency ratios.

Once the impairment principles have been understood with the help of some exercises to measure expected credit losses, IFRS 9 modeling requirements appear more explicitly. At that stage, we compare them with regulatory parameters in a search for potential leverage in setting up IFRS 9 models. Also we review the BCBS Guidance on credit risk and accounting for expected credit losses, and its 11 principles. It confirms that leveraging of Basel 3 credit models should not lead to unrealistic expectations.

Then we review the new principles for hedge accounting, called phase 3, why they are closer to business practices and how they will facilitate credit risk micro-hedging. Macro-hedging principles are yet to be defined and are not covered in this training.

Finally, we address the implementation challenges by listing, classifying and prioritizing the identified modeling and data-related challenges. A real-life example of IFRS 9 impairment calculation on an existing commercial IT platform is given. With 18 months to go until IFRS 9 day-1, each participant should have now a clear understanding of IFRS 9 nature and ambition and be able to take away a comprehensive assessment of the priorities for his/her institution.

Program of the seminar: IFRS 9

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00

Overview of IFRS 9

  • Brief history and scope of the accounting standard
  • Lessons learned from the Global Financial Crisis
  • Overview of the principles
  • Relationship with other regulatory developments
    • Basel III, BCBS Guidance on ECL

Classification of financial instruments

  • Recognition and de recognition of financial assets and liabilities
  • Overview of the asset classes
  • The SPPI criteria
  • Business model assessment
  • Classification of financial liabilities

12.00 - 13.00 Lunch

13.00 - 16.30

Measurement and impairment

  • Initial measurement
  • Amortized cost measurement
    • Effective interest method
  • Overview of impairment requirements
  • The Expected Credit Losses (ECL) concept
  • ECL components and articulation
  • Individual and collective measurements
  • Guarantees and collaterals
  • Exercises and Q&A

09.00 - 09.15 Recap

09.15 - 12.00

Impairment (continued)

  • Review of ECL assessment
  • Special cases
    • Credit impaired at initial recognition
    • Lease and receivables
  • Presentation of ECL in the financial statements

Comparison with Basel regulatory models

  • Review of regulatory models
  • Regulatory requirements on credit parameters (PD, LGD,...)
  • IFRS 9 requirements on these parameters
  • Identification of areas of potential leverage

12.00 - 13.00 Lunch

13.00 - 16.30

BCBS Guidance on expected credit losses

  • Ambition of BCBS on the matter
  • The 11 principles
  • What is the real impact of the guidance

Implementation challenges

  • State of the art IFRS 9 impairment calculation: Illustration
  • Modeling challenges
  • Data-related challenges
  • Other challenges
  • Assessment of the priorities for each participant

Evaluation and Termination of the Seminar

Training catalogue in PDF
arrow-up icon