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IASB Chairman speaks on IFRS 9

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15 Sep 2015

IASB Chairman Hans Hoogervorst discussed IFRS 9 impairment requirements at today's Financial Institutions IFRS Conference.

In his speech, Mr Hoogervorst stated that said the forward-looking expected loss model in IFRS 9 Financial Instruments should provide investors with better insight on loan loss risks. He defended the standard against claims that it was not tough enough and that banks should be required to recognise full expected lifetime losses on all loans as soon as the loan has been made. Mr Hoogervorst explained that such a requirement would seriously distort the actual performance of a bank and would probably have highly undesirable side-effects as it would not reflect economic reality, would probabaly prove to be pro-cyclical, and would lead to earnings management. He concluded:

The expected loss model in IFRS 9 will lead to much more timely recognition of inevitable losses, but it avoids the pitfalls of recognising highly uncertain lifetime losses prematurely.

Mr Hoogervorst also commented on the interaction of IFRS 9 and the forthcoming standards on insurance contracts. He indicated that the IASB is working hard to find a pragmatic solution to the problem so that the benefits from the new financial instruments standard can be reaped as soon as possible. Mr Hoogervorst admitted, that a possible deferral of IFRS 9 for certain companies is among the solutions currently considered.

Please click to access the full text of Mr Hoogervorst's speech on the IASB website.

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