Academic journal article Journal of Accountancy

The International Accounting Standards Board (IASB) Issued a New Financial Instruments Standard That Introduces an Expected-Loss Impairment Model

Academic journal article Journal of Accountancy

The International Accounting Standards Board (IASB) Issued a New Financial Instruments Standard That Introduces an Expected-Loss Impairment Model

Article excerpt

The International Accounting Standards Board (IASB) issued a new financial instruments standard that introduces an expected-loss impairment model. But the standard falls short of the goal of convergence with financial instruments guidance being developed by FASB.

IFRS 9, Financial Instruments, is the final element of the LASB's response to the global financial crisis.

The IASB and FASB worked for years to meet international calls for a converged financial instruments standard, but their efforts proved unsuccessful in part because they were unable to agree on a model for impairment.

The standard, which takes effect for annual periods beginning on or after Jan. 1, 2018, includes:

* A model for the classification and measurement of financial instruments.

* The new impairment model.

* A substantially reformed model for hedge accounting.

* Changes removing the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value.

"The reforms introduced by IFRS 9 are much-needed improvements to the reporting of financial instruments and are consistent with the requests from the G-20, the Financial Stability Board, and others for a forward-looking approach to loan-loss provisioning," IASB Chairman Hans Hoogervorst said in a news release. "The new standard will enhance investor confidence in banks' balance sheets and the financial system as a whole."

The lack of convergence with the standard FASB is developing, though, falls short of the goals of some in the international community. FASB's standard is expected to be published late this year.

Although the IASB and FASB agreed that their standards needed to reflect expected-loss rather than incurred-loss principles, they developed different models for recognizing those expected losses.

The AICPA Financial Reporting Executive Committee wrote to FASB in May 2013 strongly supporting convergence but said convergence should not be more important than a high-quality accounting standard. …

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