Viewpoint: Will IFRS 9 deliver on truth and fairness?

It’s something many have deliberated on and the speculation continues.  We think this rather depends on how consistently and robustly the impending changes are implemented across the industry.

The Standard itself gives makes clear (35B), that it expects IFRS7 disclosures under IFRS 9 to enable users of financial statements to understand the effect of credit risk on the amount, timing and uncertainty of future cash flows. To enable this, banks must disclose the following information;

(a) Information about an entity’s credit risk management practices and how they relate to the recognition and measurement of expected credit losses, including the methods, assumptions and information used to measure expected credit losses.

(b) Quantitative and qualitative information that allows users of financial statements to evaluate the amounts in the financial statements arising from expected credit losses, including changes in the amount of expected credit losses and the reasons for those changes.

(c) Information about an entity’s credit risk exposure (i.e. the credit risk inherent in an entity’s financial assets and commitments to extend credit) including significant credit risk concentrations.

It also emphasises the need for banks to consider (35D) how much detail to disclose, how much emphasis to place on different aspects of the disclosure requirements, the appropriate level of aggregation or disaggregation, and whether users of financial statements need additional explanations to evaluate the quantitative information disclosed.

If the bank considers that the information explicitly requested in the standard is not sufficient to enable users to understand the financial position (35E), the onus is on them to provide additional information to meet that objective.