IFRS 9 up for discussion at ARC meeting at European Commission

17 Sep 2015

The new IFRS accounting standard currently up for endorsement, IFRS 9, Financial Instruments, will be high on the agenda at today’s Accounting Regulatory Commission (ARC) meeting in Brussels with indications that approval of the standard is unlikely

ARC is the representative committee of the EU28 member states chaired by the European Commission, and it has a regulatory role to provide opinions on Commission proposals to adapt international accounting standards.

Today’s meeting has a scheduled slot to discuss IFRS 9 but as the Commission only received notification of the European Financial Reporting Advisory Group (EFRAG) endorsement of IFRS 9 earlier this week on 15 September, it is unlikely that the ARC will approve the standard without further reference to the European parliament. The UK representative on ARC is the Department for Business, Innovation and Skills (BIS).

EFRAG also expressed reservations about the impact of the new standard on insurers and called for exemptions for affected companies until a resolution could be reached by standard setters at the International Accounting Standards Board (IASB), who are currently working on a new standard IFRS 4 for insurance contracts.

It also flagged the lack of research into the impact of the standard on businesses and banking, stating that there was limited analysis of the implementation costs and risks.

IFRS 9 is a wide-reaching standard and when it comes into force it will have different impacts on the three key sectors of banking and wider financial services, insurance and corporates.

Sources close to the standard-setting process say that it is likely that the European Commission will consider assigning a team to produce an analytical report into the viability and effectiveness of IFRS 9 in light of the importance of the standard to act as a bulwark against a further banking crash, as witnessed in 2008.

There are also concerns that this will become a political issue and as such any final approval of the new standard could be delayed by parliamentary process.

Assuming that no decision will be taken on IFRS 9 at this meeting, the next gathering of ARC is not scheduled until 26 November.

From ARC approval to final endorsement, and publication in the Official Journal of the European Union, could take six to nine months. Once approved, early adoption will be permitted.

At the same time, the IASB has indicated that it may have to defer the final implementation date for IFRS 9 due to ongoing issues and technical mismatches affecting the insurance industry and any companies and banks with insurance contracts' business.