With new rules for reporting for banks and financial institutions under IFRS 9 Financial Instruments, Wolters Kluwer global IFRS expert, Jeroen Van Doorsselaere considers expected loss and credit risk assessments
Both IFRS 9 Financial Instruments and the US Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss Model (CECL) are principles-based. While plenty of regulators follow the principles-based logic provided by the International Accounting Standards Board (IASB) or FASB, it is subject to change to allow the basic principles of the accounting framework for both standards.
The Basel Committee on Banking Supervision (BCBS) guidance, meanwhile, has pushed preparers of the standards towards a system of internal control governance with direct responsibility for senior management (BCBS 311 principle 1, board’s overall responsibilities).
In addition to pushing for direct management involvement, the BCBS also stresses that the judgment should be based on experienced resourcing, robust forward looking information and be in line with the Basel core principles, even though this is an IFRS 9/CECL standard (BCBS 311 principle 6, risk data aggregation). In short, the responsibility cannot be taken lightly.
