IASB Discusses Application of IFRS 9 Disclosures Amid COVID-19 Crisis
IASB published an article, by Mary Tokar and Sid Kumar, that discusses the potential key financial reporting considerations for preparers, auditors, investors, and regulators as they tackle the complexities associated with the COVID-19 crisis. The discussion draws on views shared during a panel discussion at the IFRS Foundation Virtual Conference on September 28, 2020. The focus is on what information entities should consider when developing assumptions in preparing financial statements in times of heightened uncertainty and what information to disclose about the assumptions used. Most attendees at the conference agreed that disclosure requirements in IFRS standards are satisfactory but improvements are needed in their application.
During the panel discussion, the attendees were polled and asked about a financial reporting issue that was the most challenging in this period of uncertainty. The respondents identified reporting of impairment of financial assets and disclosure of significant judgments as the most challenging tasks. IASB received numerous questions on the application of IFRS 9 on financial instruments during the pandemic. In response to these questions, in March 2020, educational material was published reiterating the requirements in IFRS 9 on the expected credit losses (ECL) model. The educational material emphasized that entities should use all reasonable and supportable information that is available to an entity without undue cost or effort when applying IFRS 9, instead of relying on some mechanistic criterion to determine movements in ECL. In addition, the panel discussed disclosure requirements about assumptions and estimates for both annual and interim financial statements. For entities that report at the end of the calendar year, the impact of COVID-19 was first a reporting issue in their interim financial statement.
The panel also discussed the importance of better information about significant assumptions taking the example of ECL in IFRS 9. An ECL approach requires lenders such as banks to use forward-looking, macro-economic assumptions as inputs in models. These assumptions may be classified as general assumptions by some stakeholders because they may relate to factors outside the control of a bank. In contrast, entity-specific assumptions relate to an entity’s actions and characteristics. When two similar banks use similar general assumptions and arrive at different ECL balances relative to their gross loan books, users want additional information so they can assess the differences in the coverage ratios. For each bank, users want information that helps them understand the extent to which each ECL balance is driven by general assumptions or by entity-specific assumptions that may reflect differences in customer characteristics, loan products, collateral, or other loan terms. Without this information, users find it challenging to make meaningful comparisons. The requirements in IFRS 7 on disclosures related to financial instruments were developed considering user needs and IFRS 7 requires entities to explain the factors that affect measurement of their ECLs.
Keywords: International, Banking, COVID-19, IFRS 9, IFRS 7, ECL, Financial Instruments, Disclosures, Financial Reporting, IASB
Featured Experts

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant

Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
CBB Launches Fintech Platform and Open Banking Framework in BahrainRelated Articles
FED Proposes to Extend Data Collection Under Stress Testing Guidance
FED proposed three-year extension, without revision, of the information collection FR 4202, titled "Recordkeeping Provisions Associated with Stress Testing Guidance."
FCA Proposes Updates to Guidance on Mortgage Repossessions
FCA updated the draft guidance for firms to ensure that mortgage customers whose homes may be repossessed are treated fairly and appropriately, particularly where there are risks of harm to customers who are vulnerable as a result of the COVID-19 pandemic.
FCA Announces Cessation Timeline for Certain LIBOR Benchmark Settings
FCA issued a statement on the cessation or loss of representativeness of the 35 LIBOR benchmark settings published by ICE Benchmark Administration or IBA.
EBA Publishes Reporting and Disclosures Framework for Investment Firms
EBA published a package that includes the final draft implementing technical standards on supervisory reporting and disclosures of investment firms.
BIS Examines Use of Big Data and Machine Learning at Central Banks
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA Finalizes Reporting Standard for Operational Risk Requirements
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB Publishes Guide for Determining Penalties for Regulatory Breaches
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS Sets Out Good Practices to Manage Operational Risks Amid COVID
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR Announces New Data Collection Application for Banks and Insurers
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.