This summer I attended the IFRS Foundation Conference in London, looking forward particularly to a session on IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. This panel was chaired by Mary Tokar (IASB Member and former global leader of the KPMG International Financial Reporting Group), who has not only excellent technical knowledge but a really entertaining presentation style. Her panel contained preparers1 and investors,2 whose views were very insightful. I will share some of them in this article.

IFRS 9 from the point of view of the investors

Firstly, it was emphasized that it is important to include, in the financial statements (FS), the disclosures on methodology/approach taken to calculate expected credit losses (ECL). One of the panelists found the disclosures on sensitivity analysis related to ECL measurement problematic, and I agree that it is not explicitly required by IFRS 7 Financial Instruments: Disclosures to include a sensitivity analysis on ECL calculation in the FS, but only required by paragraph 125/129(b) of IAS 1 Presentation of Financial Statements.

Some banks tend to omit these disclosures, but they can give valuable information to investors. What kind of information do I mean? Well, for example, the reader of the FS can get to know how ECL would have changed if one key macroeconomic variable had been changed by X percent in the different economic scenarios. Of course, only those variables should be selected that are the most relevant to the presented portfolio. Further, the ECL provision is sensitive to changing scenario weights, so it is useful to present what the amount of ECL provision would have been if it had been determined based only on the basic scenario.

One of the panelists also added that the comparability of the FSs is still tough. I can understand this, as there is no common approach to how the downside/basic/upside scenarios (banks need to set up different future economic scenarios for ECL calculation) should be calculated. Additionally, without understanding the underlying methodology, it is hard to compare the scenarios of different banks. It was also noted that, in practice, there is a mixed approach regarding the disaggregation in reconciliation tables for movements in gross loans. Some banks go ahead with high level of disaggregation and disclose the changes of ECL provision resulting from:

  • transfers between stages
  • remeasurement from transfers
  • new financial asset origination
  • write-offs

Other banks, meanwhile, just disaggregate write-offs from others, which is obviously not welcomed by investors.

One of the panelists commented that his company, a digital entertainment firm, was less affected by IFRS 9 than banks—but this nevertheless makes clear that IFRS 9 is not a standard only for banks. It was also noted that, in the UK, the implementation of IFRS 9 for banks was really supported by the initiative of UK Task Force, which is still ongoing. As a next step, pro-forma disclosures are expected to be on their way—keep an eye out.

Key questions

In conclusion, if you are involved in preparing ECL disclosures, consider two questions:

  • Is the disaggregation in the reconciliation table for movements in gross loans sufficient?
  • Are you compliant with IAS 1.125/129(b) regarding sensitivity analysis on ECL calculation (it depends on the level of the estimation uncertainty related to ECL calculation and the degree of judgment applied during the calculation)?


1 Katie Murray (Executive Director and CFO at RBS) and Bertrand Perrin (Director, Accounting Standards and Special Projects at Vivendi)

2 Manus Costello (Global Head of Research at Autonomous) and Jeremy Stuber (Global Equity Analyst at Newton Investment Management)

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