Upgrading to the latest International Financial Reporting Standards (IFRS 9) is a large transformational event for all financial institutions, regardless of their size and complexity.
The IFRS 9 "financial instrument's" objective establishes principles for the financial reporting of financial instruments and enables the presentation of relevant and useful information to all users of financial statements. The information supports the assessment of amounts, timing and certainty/uncertainty of the entity's future cash flows.
Under IAS 39, a financial institution was allowed to recognize a credit loss on a financial asset only once there was objective evidence that an impaired event had occurred. This method underestimates the required provisioning levels of banks since it delays the recognition of credit losses. The purpose of IFRS9 is therefore to increase financial stability by introducing a forward looking expected loss impairment model which allows banks to provision when a financial asset is recognized.
The implementation of IFRS 9 Impairment will have a significant impact on financial institutions in several areas over the next few years. It is critical for senior management to understand that IFRS requires strengthening of organizational internal skills and capacity across both core financial and non-finance areas.
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