10 October 2016

Investment & Pensions Europe: Accounting rulebook IFRS 9 clears last hurdle in European Parliament

The International Accounting Standards Board’s (IASB) proposed new rulebook for financial instruments accounting, International Financial Reporting Standard 9, Financial Instruments (IFRS 9), has cleared its last major hurdle in the European Parliament.

In a plenary session held on 6 October, the Parliament confirmed it would not veto IFRS 9.

Critics of the board’s existing impairment rules argue that, because they measure incurred losses rather than an expected loss, they lead to too-little-too-late recognition of losses on impaired assets.

The 6 October vote was not, however, an unqualified endorsement of the new standard, which will replace International Accounting Standard 39, Financial Instruments: Recognition and Measurement.

In a strongly worded resolution, the Parliament reiterated the call of its Committee on Economic and Monetary Affairs for the ESRB to analyse the financial stability implications of the introduction of IFRS 9.

In a letter dated 29 February addressed to the Parliament’s ECON committee, ECB chairman Mario Draghi wrote that the impact of IFRS 9 was as yet unknown. A study by academics from Mannheim Business School subsequently endorsed the standard as an improvement over IAS 39.

In an email response dated 21 March, the authors of that report said: “We agree the assessment of the full impact of IFRS 9 on individual banks, and the financial system as a whole, is not fully possible to simulate ex-ante.

“Note that, for an individual large bank, a team of 200-300 people will be involved in managing the transition process.

“So, even individual banks cannot assess the impact with full certainty, let alone the regulator, which would have to accumulate the information of all relevant banks under their supervision. This is simply not feasible given the data/systems currently in place.”

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