Implementation of IFRS 9: What half year results tell us so far

Implementation of IFRS 9: What half year results tell us so far

 By Hugh Shields, Director, Huawei

Hugh, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I currently work for Huawei, the world’s largest telco. Prior to that, I was lead Technical Director at the International Accounting Standards Board for 3 years and before that I worked in investment banking for 12 years.

My professional focus:

Firstly, my current role at Huawei is partly concerned with the quality of new IFRS Standard implementation.

Secondly, wearing a broader hat, I have a role at The Institute of Chartered Accountants of Scotland which involves assessing the current state of the corporate reporting world and making recommendations for improvement. There is a lot of discussion in the press about the role of auditors, the interaction of auditing and accounting standards, and whether the whole corporate reporting framework is fit for purpose. It is important to engage constructively in this debate.

What, for you, are the key concerns / challenges post-implementation?

The key concerns and challenges largely relate to implementation of the expected credit loss (ECL) model. The ECL model is the single most challenging aspect of IFRS 9, partly because of the data requirements and partly because of the judgements involved. As regards the latter, the need to incorporate forward-looking expectations about the economy into the expected loss results makes IFRS 9 difficult to implement – at least in a consistent way across different institutions.

 …How can we look to combat the above concerns and challenges effectively?

From an individual company or bank perspective, it is important to document clearly and comprehensively the methodologies and procedures adopted in implementing the ECL model. Certainly, auditors will be looking for highly developed documentation in order to support the difficult judgements which are involved.

Outside the banks and other institutions, the regulators have a key role to play. And indeed, the regulators have been playing this role to ensure consistent and appropriate outcomes as far as possible. We can expect the regulators to continue to take a proactive role in this respect.

 What are the lessons learnt from stress tests under IFRS 9?

I think the results largely confirm what we know to be true: that IFRS 9 is a challenging and difficult standard to implement, with different institutions coming at it in slightly different ways and therefore with the challenge of potentially difficult-to-reconcile results from one institution to another.

How do you see the impact of IFRS 9 evolving over the next 6-12 months?

In the next 6 to 12 months, we will see the full year results of the various institutions reporting under IFRS 9. Bodies such as the European Securities Markets Association and others will be reviewing the results with great interest and assessing what improvements can be made. Inevitably, in the first year of implementation of a large and complex standard, there will need to be a period of “settling down” and the market will need to absorb what has been reported. I think one can expect incremental changes and improvements from institutions following this first period of implementation and feedback.

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