New IFRS 9 - financial instrument reporting made easier?

by Cecile Bonino, ACCA Brussels office

Since the financial crisis, the banking sector has been affected by issues linked to accounting policies and standards. These include challenges associated with fair value accounting, pro-cyclicality and comparability of numbers, as well as performance in financial reports.

It is reassuring that after the G20 request to international standard setters in April 2009 to clarify accounting rules, many of the issues raised have started to be addressed, but it is too soon to be complacent.

The European Union adopted the IFRS standards, including IAS39 - the standard on the recognition and measurement of financial instruments - as part of the move to IFRS by listed companies from 2005.

In 2009, the IASB published the first part of IFRS 9, a new standard to replace IAS 39. This still provides for a 'mixed model' - that is some financial assets to be shown at historical cost and some to be at fair value - but a simpler version. However, IFRS 9 has been seen by some to place too much emphasis upon valuing assets based on market prices.

IASB has also published a proposal for loan loss and other impairments of debts when at historical cost, while proposals are still expected later this year on the measurement of liabilities and on hedge accounting.

The adoption of IFRS 9 by Europe is clearly a crucial question for the future of the IFRS framework as a whole. In this context, a recent roundtable in Brussels organised by ACCA and Barclays - entitled New IFRS 9: Reporting of financial instruments made simpler? - considered if the new standard will align sufficiently financial reporting with the business model and, should this be the case, what still needs to be done.

The European Commission has decided to put a hold on transposing the rule into Community law until the remaining sections of IFRS 9 are released, urging the IASB to strike the right balance between the two different accounting models, the reporting assets at fair value (market prices) and (amortised) cost price.

There is no sign so far of an early endorsement; the whole process will take longer than expected, especially since the IFRS 9 proposals are a part of an even bigger set of expected changes.

Even though no major disagreement among stakeholders exists on the direction standards should be changed, there are still many details to be completed. Improvements have been achieved but the seriousness of the remaining concerns might be a further obstacle. In addition, on the convergence issue, no firm proposals have yet been published by FASB, the US standard setter in this regard, though the body's deliberations have favoured a model where most financial instruments would be at fair value. This is expected to lead to further difficulties.