26 May 2016

EBF letter to ESMA on IFRS 9 pre-transition disclosures

EBF published its letter in reference to ESMA plans to issue a statement on disclosures before IFRS 9 ‘Financial Instruments’ is implemented to encourage listed companies to provide timely and relevant information on the expected impact of the IFRS 9 in accordance with IAS 8.

EBF is well aware of the market interest in IFRS 9 information as well as the importance to financial stability of ensuring that the market is not surprised by the consequences of the new accounting standard. Therefore EBF supports the requirements in IAS 8 to state such if the impact of a new standard is not known or reasonably estimable. The Enhanced Disclosure Task Force (EDTF) set up by the Financial Stability Board, extensively discussed the timing of providing disclosures on IFRS 9 in the transition period.

It concluded that, given that the changes introduced are likely to require extensive data, systems and process changes within banks, a gradual and phased approach during the transition period would be most useful to users, to give them clearer insights into the likely impacts of the new standards as implementations progress and to allow users to make increasingly useful comparisons between banks. The initial focus should be on qualitative disclosures. The quantitative disclosures should be added as soon as they can be practicably determined and are reliable but, at the latest, in 2017 annual reports for IFRS reporters. A gradual and phased approach means that: (a) the initial timing of information being provided, whether qualitative or quantitative, should be weighed against reliability; and (b) the nature and extent of disclosures will develop over time.

The timing of providing public disclosures to reflect the EDTF recommendations is likely to vary between banks due to differences in their individual timetables for developing and implementing ECL provisioning.

In addition, the prudential treatment of IFRS 9 impacts is still awaiting clarification. The Basel Committee is expected to publish a consultation paper on the prudential treatment of the impacts of IFRS 9 at the end of June, which is only the first stage of obtaining an understanding of the regulatory impacts. In the absence of clarity over the regulatory impacts, banks will be unable to provide information on the potential impact to their businesses, which is a key focus of users.

While the objective of ESMA providing a statement on the pre-transition disclosures is unclear, EBF is concerned that any statement should not be issued without prior public consultation. EBF would also be concerned if such a statement contradicted the IAS 8 requirements since impacts that cannot be reasonably estimable should not be disclosed and the determination of when such estimates are reliable is a matter for individual banks.

Full letter

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