EDTF publishes report on expected credit losses and disclosures and 2015 progress report on implementation of the general EDTF principles and recommendations

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07 Dec 2015

The Financial Stability Board (FSB) has published two reports by its Enhanced Disclosure Task Force (EDTF). The first report considers the changes banks will need to make to their financial disclosures with the implementation of a new expected credit loss accounting standard. The second report is shows the progress that has been made towards implementing the 2012 EDTF recommendations regarding enhancing the risk disclosure of banks.

The expected credit loss (ECL) approach included by the IASB in IFRS 9 Financial Instruments and also expected to be announced by the US FASB soon will have a significant impact on bank's impairment accounting and the reporting on it. Given the importance of these changes for the industry, the FSB requested the EDTF to consider disclosures that may be useful to help the market understand the upcoming changes (whether under IFRSs or US GAAP) and to promote consistency and comparability. The EDTF used its priciples and general recommendations contained in its 2012 report Enhancing the Risk Disclosures of Banks, considered their applicability on diclosures in the context of an an ECL approach and included additional considerations in two classes: temporary considerations that will cease to apply following the transition to an ECL framework and permanent considerations that will continue to apply following the adoption of the new accounting standards. A special section of the report is devoted to IFRS 9 specific considerations (see pp. 10-11 of the report). Recommendations include additional disclosures on:

  • Key concepts of the expected loss approach;
  • differences and similarities between IAS 39 and IFRS 9;
  • default and whether the 90 day rebuttable presumption is intended to be used and in what circumstances;
  • the concept of credit-impaired exposures;
  • significant increase in credit risk and the policies and approaches applied;
  • initial recognition of exposures where it may be difficult to determine credit risk; and
  • treatment of modifications.

Please click to access the full report and a corresponding press release on the FSB website. A press release on the IASB website welcomes the publication of the report.

The second report published today is a follow-up on the implementation on the level and quality of the implementation of all seven fundamental principles for enhancing risk disclosure and the  32 specific recommendations included in the 2012 report. Similar progress reports were already published in 2013 and 2014. The report includes self-assessments by banks, plus assessments by users of financial disclosures, on the extent to which they believe the recommendations have been implemented. Based on results from bank self-assessments 82% of firms say they have fully implemented the recommendations, up from 75% the year before. The report concludes that most progress implementing the 2012 recommendations has been made by Canadian and UK banks. In jurisdictions where efforts to follow the EDTF recommendations are more recent (e.g. China, Japan), implementation rates are lower and differences between the bank and user assessments are wider. Please click to access the 2015 progress report and a corresponding press release on the FSB website.

For more information, see this paper from Deloitte (UK), which discusses how banks should consider the EDTF guidance for their next annual reports.

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