IFRS 9 Due Date Adds to the Regulatory Heat of 2018

By Jeroen Van Doorsselaere, Director, Business Development, Global Finance and Performance at Wolters Kluwer Financial Services

On 21 February 2014, nine months after the IASB’s (International Accounting Standard Board) chairman Hans Hoogervorst gave his “breaking the boilerplate” speech, which called for a behavioral change in financial disclosures and urged for a more “sensible” way of reporting (quality over quantity), the IASB has made the tentative decision of setting 1 January 2018 as the effective date for IFRS 9.

Jeroen Van Doorsselaere

While four years seems like a relatively long way away, firms need to remember – Rome wasn’t built in a day, and there are a number of issues firms need to take into consideration in order to be ready for 2018. For example, one of the main reasons the IASB has voted in favor of a 2018 deadline is from a direct consequence of the recent fieldwork around IFRS 9 that the IASB and advisory groups such as the European Financial Reporting Advisory Group (EFRAG) have undertaken. The fieldwork shows that a three year period would be necessary for banks to comply with the IFRS 9 regulations, plus an extra year for the IASB to finalize the remaining parts of IFRS 9 on impairment and the expected loss model.

An additional point that firms need to take into consideration is that this announcement means that firms are not only are faced with new accounting standards, but they also have to ensure that they plan for larger capital requirements under the Basel III accord, within the same timeframe.

The IASB initially strived to make the IFRS 9 deadline coincide with another important project impacting financial institutions – more specifically for insurers. However this was not confirmed as a hard dependency as the board said it would give the insurance project more time to finish. Additionally, firms need to be aware of another project the IASB is working on to develop a standard that establishes the principles that lessees and lessors should apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. While these do not have a 2018 deadline, both of these projects will create additional work for financial institutions during that period.

With IFRS 9 classification, measurement, impairment and hedging, stricter capital requirements, new standards on insurance and leasing contracts on the collective doorstep, firms will be challenged going forward. They will be challenged with more specific and transparent calculations and disclosures with different supervisors who will be keeping an eye on them closely to ensure that the events in 2008 will not be repeated 10 years later when all crisis measures are finally implemented.

One could argue that dates are set internationally and local regulators could postpone them in their local jurisdiction. However, with the above points in mind, in reality the heat is on for firms to start getting their organizations in shape to meet these and other requirements now. The overriding element here is that firms need to keep up-to-date with regulatory change and ensure they have the right technology and know-how on hand in order to ensure timely and strategic planning for 2018.