The International Financial Reporting Standard 9 officially went into effect on January 1, 2018. This measure replaces the previously-followed IAS 39.
According to PricewaterhouseCoopers, “IFRS 9 responds to criticisms that IAS 39 is too complex, inconsistent with the way entities manage their businesses and risks, and defers the recognition of credit losses on loans and receivables until too late in the credit cycle.”
In practical terms, IFRS 9 employs an “expected loss” methodology that replaces the “incurred loss” approach of the IAS 39. It also calls for proper classification of clients, counterparties and transactions, and for financial institutions to record data and generate reports based on the new criteria.
Some of the key changes include:
· Classification of clients as low, medium or high risk
· Classification of individual loans as low, medium or high risk
· Reporting credit scores of each client or counterparty
· Obtaining ratings for each security from a rating agency
· Re-classification of financial assets according to IFRS 9 categories:
o Amortized Cost
o FVTOCI (Fair Value Through Other Comprehensive Income)
o FVTPL (Fair Value Through Profit or Loss)
Some of the most impactful changes come in regards to impaired financial assets, including loans. Click HERE for more detailed information about IFRS 9 and loans.
Click HERE to see how MIMICS has you and your software covered for IFRS 9 changes.