PRA publishes IFRS 9 note to non-executive directors
01 Nov, 2017
The Prudential Regulation Authority (PRA) has published a note entitled ‘Getting ready for IFRS 9’ which is aimed at non-executive directors (NEDs) who sit on the board of firms affected by the implementation of International Financial Reporting Standard (IFRS) 9 ‘Financial Instruments’; particularly those who are also on the audit committee.
The PRA highlights that “it is important that NEDs engage with IFRS 9 and have the support they need to challenge management effectively”. Although IFRS 9 will have implications from an accounting perspective, it will also have wider implications for other aspects of a bank, including considerations relevant to the PRA. The PRA are particularly interested in:
- the interaction of expected credit loss (ECL) with regulatory capital;
- the implications of ECL for credit risk management practices; and
- transparency and disclosure.
With that in mind, the note includes four questions that NEDs should discuss with/challenge their boards on in relation to implementing IFRS 9:
- What is your firm’s approach to transitional arrangements?
- Does your board understand the impact of the new provisioning for ECL and how it affects different types of lending and overall capital planning – both in business-as-usual and stressed conditions?
- Is your firm’s governance upgraded sufficiently to cope with higher volume of forward looking credit risk data?
- Will disclosures enable investors and other users of financial data to transition effectively to IFRS 9?
It also has a section directed at those NEDs on the audit committee and ‘essential reading’ that NEDs will find helpful.
The full note is available on the PRA website.
