New financial reporting standard will lead to fundamental change, says IASB chief

The chairman of the International Accounting Standards Board, Hans Hoogervorst, has said the new IFRS 9 standard will give investors better insight on loan loss risks.

The IASB is the independent standard-setting body of the IFRS Foundation, which works with investors, analysts, regulators and others in the global accountancy sector.

New standard

Speaking at an annual financial services institutions event, jointly organised by the IFRS Foundation and the ICAEW, Hoogervorst spoke about the practicality of implementing the impairment element of the financial instruments Standard IFRS 9.

The new Standard was finalised last year in July and will become effective at the start of 2018.

Hoogervorst said: "The impairment element of IFRS 9 will result in fundamental change to current practice. It should help investors get a better picture of the risks banks face with regard to potential losses on loans extended to customers."

Risk Advisory Services Partner at financial services firm Parker Fitzgerald, Simon Wilson recently commented: "IFRS 9 should create a greater degree of transparency over the performance of a financial institution's loan books through the introduction of new disclosure requirements that help management, investors and regulators alike understand the drivers of loan performance."

Credit risk

The new standard will replace the International Accounting Standard 39 and is aimed at simplifying standard accounting rules concerning impairment calculation issues.

The fallout from the global financial crisis was the catalyst for the changes, which will require banks to change the way they recognise expected losses on loans.

Hoogervorst said that robust capital requirements are "the best way to make the banking system safe and that transparent accounting can be of great help."