The EU Economic and Financial Affairs Council has approved a draft regulation on transitional arrangements to phase in the regulatory capital impact on banks of the introduction of IFRS 9.
The EU Economic and Financial Affairs Council has approved a draft regulation on transitional arrangements to phase in the regulatory capital impact on banks of the introduction of IFRS 9.
EU companies and banks are required to use the new standard in preparing financial statements for accounting periods starting on or after 1 January 2018.
IFRS 9 replaces major parts of IAS 39 ‘Financial Instruments: Recognition and Measurement’, containing a new impairment model based on expected credit losses (bad debts). When IFRS 9 is first adopted, companies will need to account for the transitional adjustment, resulting in increased credit loss allowances, which will effectively bring forward tax relief and reduce taxable profits. The UK has introduced regulations (SI 2015/1541) allowing companies to spread the effect of the accounting changes over 10 years for corporation tax purposes.
Banks switching to IFRS 9 may also see a sudden fall in their regulatory capital ratios. The draft regulation would allow banks to add back to their ‘common equity tier 1’ capital a portion of the increased loss provisions as extra capital during a five-year transitional period. The amount added back will decrease to zero over the course of the transitional period.
The council will require a qualified majority, in agreement with the Parliament, to adopt the new regulation.
The EU Economic and Financial Affairs Council has approved a draft regulation on transitional arrangements to phase in the regulatory capital impact on banks of the introduction of IFRS 9.
The EU Economic and Financial Affairs Council has approved a draft regulation on transitional arrangements to phase in the regulatory capital impact on banks of the introduction of IFRS 9.
EU companies and banks are required to use the new standard in preparing financial statements for accounting periods starting on or after 1 January 2018.
IFRS 9 replaces major parts of IAS 39 ‘Financial Instruments: Recognition and Measurement’, containing a new impairment model based on expected credit losses (bad debts). When IFRS 9 is first adopted, companies will need to account for the transitional adjustment, resulting in increased credit loss allowances, which will effectively bring forward tax relief and reduce taxable profits. The UK has introduced regulations (SI 2015/1541) allowing companies to spread the effect of the accounting changes over 10 years for corporation tax purposes.
Banks switching to IFRS 9 may also see a sudden fall in their regulatory capital ratios. The draft regulation would allow banks to add back to their ‘common equity tier 1’ capital a portion of the increased loss provisions as extra capital during a five-year transitional period. The amount added back will decrease to zero over the course of the transitional period.
The council will require a qualified majority, in agreement with the Parliament, to adopt the new regulation.
