RiskTech Forum

Wolters Kluwer: IFRS 9, CECL, BCBS 311 - Preparing for Financial Standards Around the World

Posted: 14 February 2017  |  Source: Wolters Kluwer

Overhauls of standards by the two main arbiters of accounting practices, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB)1, have produced the Current Expected Credit Loss (CECL) and IFRS 9 Financial Instruments protocols, respectively.

Beyond those, firms must contend with guidelines issued by national authorities that instruct them in how to interpret and apply the standards, and with requirements set forth by the Basel Committee on Banking Supervision. The committee expressed its thoughts in consultative document 311, issued in February 2015. It updated them in a discussion paper last October2, acknowledging the difficulties that firms might have in implementing the accounting standards and hinting at a willingness to be flexible in how they apply the committee’s principles.

With its emphasis on predicting credit losses, IFRS 9 is seen as an improvement on the traditional incurred-loss model, which only recognized losses after a default or other triggering event. CECL is intended to make the same upgrade to the American method of accounting for credit risk, although it permits historical factors to retain a greater role in the process. Other ways in which the standards diverge relate to how the results of expected-loss calculations are used throughout an organization and in reports to regulators and shareholders.

Standard setters and regulators insist that they’re all part of one big, happy family of overseers striving to reach a common goal – set out on several occasions, most notably at a June 2011 G20 conclave – of ensuring that firms operate in an efficient and prudent manner. No doubt, that’s true, but as they come to grips with the new supervisory order, firms are realizing that even slight discrepancies in how that goal is envisioned, and the mechanisms instituted to try to achieve it, are likely to create added confusion, work and expense.

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