Articlebronze2020

Prudential Application of IFRS 9: (Un)Fair Reporting in COVID‐19 Crisis for Banks Worldwide?!

Aziz el Barnoussi · Bryan A. Howieson · Ferdy van Beest

45 citations0/0 files storedAustralian Accounting Review

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Accounting Theory and Financial Reporting Banking stability, regulation, efficiency Auditing, Earnings Management, Governance

Abstract

Abstract IFRS 9 and ASC 326 were developed after the 2008–2009 financial crisis, and both accounting standards include an expected loss model as a means of providing for credit losses. As a result of the COVID‐19 worldwide pandemic, however, banks face considerable uncertainty about the potential scale of the bad debts for which they will need to provide. Banks need to reassess their loan assets, by updating their risk models with expectations about potential default rates and future macro‐economic and financial developments. However, we see several interventions worldwide. The European Securities and Markets Authority addresses a position paper on the prudential application of IFRS 9. The Coronavirus Aid, Relief, and Economic Security Act in the US has given banks an optional deferral of implementation of the CECL model until 31 December 2020. This paper addresses the challenges banks face when applying the expected losses model during the current crisis. More importantly, it discusses the impact of supervisor and regulators’ intervention on future financial reporting comparability, transparency and whether there is a level playing field.

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References

2009The crisis of fair-value accounting: Making sense of the recent debate 2010The Rise of “Economic Consequences”2011The Timeliness of Accounting Write-Downs by U.S. Financial Institutions During the Financial Crisis of 2007-2008 2009Report and Recommendations Pursuant to Section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-To-Market Accounting 2018The impact of loan loss provisioning on bank capital requirements 2009The roles of financial asset market failure denial and the economic crisis: Reflections on accounting and financial theories and practices

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