According to a new Deloitte inaugural global banking IFRS 9 impairment survey, leading international banking groups, many of which are headquartered in the Middle East and North Africa, believe that IFRS 9 impairment accounting proposals will improve financial statements, in comparison to those prepared using the current IAS 39 rules. Many of the 56 institutions that were surveyed in Europe, Asia Pacific, North America and the MENA region revealed that they have laid the framework for meeting the proposed effective date of 2015 for implementing the IFRS 9 impairment accounting proposals. Just over half will have started their enactment by the end of 2011, and nearly 90% will have started by 2012. Broadly defined, impairment accounting addresses the timing of when loan losses are recognized in financial statements. During the financial crisis, the current incurred loss model was widely criticized because losses recognized were ‘too little, and too late'. New rules on impairment accounting are being developed jointly by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), and will see a shift away from an incurred loss model to an expected loss model. Once finalized, these proposals will form part of IFRS 9 Financial Instruments, the accounting standard to replace IAS 39 Financial Instruments: Recognition and Measurement. Despite progress being made in relation to the accounting change, there remains some industry skepticism. Deloitte's survey showed that just over a quarter of banking groups are unconvinced that the introduction of an expected loss model will make financial statements more useful and over half believe it will result in a lack of comparability between institutions. Survey respondents also said it was likely regulators would find expected loss numbers more useful than shareholders. Abbas Ali Mirza, Audit partner at Deloitte in the UAE says: “In addition to the major changes brought to classification and measurement of financial assets which are now driven by business models rather than intention and ability, impairment accounting is an additional area of change affecting the financial statements of major banking groups globally and in the MENA region, within the foreseeable future. While the rule changes are designed to increase transparency around loan loss provisioning, survey respondents indicated that it is likely that regulators would find the detail most useful. It was also found that it may be difficult for those without technical accounting backgrounds to understand how the changes affect loan loss accounting and, consequently, loan pricing.”
