IFRS 9 delayed two years to 2015
Thursday 28 July 2011
by Andrew Hickley
Global accounting regulators will propose a two-year delay to the IFRS 9 standard, but are split on whether firms should be allowed to adopt the standards earlier.
The "major decision" from an International Accounting Standards Board meeting last week proposes that the effective date of the IFRS 9 project is extended to 1 January 2015, new IASB vice chairman Ian Mackintosh says.
He says: "We're going to expose the proposal so that the effective date be extended to January 2015. Now there are a number of reasons for this but the other arms of the financial instruments project haven't been completed, and a lot of people want to see this as a package.
"We'll be doing our best to get those other arms as soon as we can, but we thought it was important that we signal to the market that there is going to be more time, not just 2013 as originally proposed."
International Financial Reporting Standard 9 covers the classification and measurement of financial assets along with a methodology for impairment and hedge accounting.
The US Financial Accounting Standards Board also attended the meeting and Mackintosh says that the two standard setters disagreed on whether early adoption of IFRS 9 and other standards on revenue recognition, leases and insurance contracts should be allowed.
Members of FASB unanimously agreed that early application should generally not be permitted, but when making a final decision it will consider the facts and circumstances of each individual project.
But the IASB unanimously voted to permit early application of new IFRSs by first-time adopters, while considering the issue of early application by other firms on a standard-by-standard basis.
The meeting also made progress on the "basic parts" of the model that will be used for impairment standards, according to IASB director of technical activities Alan Teixeira.
The boards agreed on the use of three "buckets" that loans would be placed in depending on the likelihood of repayment. It was agreed that an approach would be developed on credit risk management systems in order to classify and transfer financial assets between the three categories.
The top bucket would consist of safe loans, while the bottom category would be made up of loans where there is already evidence these are not being repaid, meaning they will be managed on a loan-by-loan basis.
The middle bucket will consist of loans where a loss should be expected, Teixeira said. He cited the example of a factory shutting down and this leading to a number of its former employees being unable to pay their mortgages.
He added that any expected losses in the top bucket would be based on an annual rate rather than an annualised loss rate.
The annual rate will calculate losses that are expected to occur within the next 12 months, as opposed to calculating the lifetime losses and dividing this by the number of years remaining on the loan.
Teixeira said this was aimed to keep the method "as operationally simple as possible".
He added that this change in approach makes it likely that the standard will have to be re-exposed, with the next due process document to be released in either the third or fourth quarter of 2011.