By Ediri Ejoh & Prince Okafor
Professional service firm, KPMG has called for the adoption of the new International Financial Reporting Standard, IFRS 9, for a more professional financial measurement.
IFRS 9 replaces IAS 39.
The Senior Manager, Department of Professional Practice, Mr. Yemi Badejo, who made this call at a breakfast meeting organized by KPMG Nigeria, stated that the new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity.
According to him, “the introduction of IFRS 9 is to balance the shortcoming of IAS 39, which was perceived to be complex and rules based classification methods and its impairment method are based on trigger that are deemed to be too little-too late.
“Also, its ‘own credit risk’ principle allowed banks to recognize fair value gains from their financial liabilities designated at FVTPL, as It does not reflect economic reality as evidenced in the global financial crisis”.
He explained that the IFRS 9, which was issued on 24 July 2014, is aimed at improving and simplifying reporting for financial instruments, as well as enable accelerated response to the global financial crisis.
He explained that there would be no more costs exemptions for unquoted equity instruments as expected loss would replace incurred loss, while impairment loss will be recorded from date of initial recognition.
Badejo posited that implementing the new standard would require significant efforts and resources for many Deposit Money Banks in Nigeria and advised them to start early.
On the differences with IAS 39, he said: ‘Expected loss model’ replaces IAS 39 ‘Incurred loss model’, impairment trigger no longer required before impairment allowance is recognised and it does not apply to equity investments
Also speaking, Partner, Head of Risk Consulting, KPMG, Mr. Olumide Olayinka, said that IFRS 9 as an expected Credit Loss Model, will recognize expected credit losses from initial recognition and at each subsequent reporting period, even if they have not yet been incurred.
Also, “in addition to past events and current conditions, reasonable and supportable forecasts affecting collectability are also considered when determining the amount of impairment.
Olayinka, argued that “for financial institutions with an established credit risk management framework, there are significant opportunities to use the existing skills and resources.”