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IFRS 9 faces serious Brexit effect, says ICAEW

ICAEW’s new guide, ‘Brexit and IFRS 9 Financial instruments – expected credit losses’, highlights key considerations to help banks and others, including auditors and internal auditors, approach these challenges effectively.

March 2019

IFRS 9 Financial Instruments is applicable for reporting periods beginning on or after 1 January 2018. The existing challenges around this new reporting standard are well known but it is likely they will be exacerbated by the uncertain consequences of Brexit.

The standard requires banks and other preparers applying the standard to provide for future expected credit losses rather than incurred losses. This guide provides essential insight into Brexit’s potential impact on scenario analyses, including in the event of ‘no deal’.

It also explores other aspects of governance which may require additional time and effort, such as around models and assumptions, as well as disclosure requirements and how Brexit could influence them.

Philippa Kelly, ICAEW’s head of financial services, says: “Providing an estimate for future expected losses is already a complex task involving a lot of judgment. The uncertainty of Brexit complicates it even more. The different aspects of any potential Brexit deal, if and when it is finalised, may affect the various scenarios used to model expected credit losses. This will require highly technical designs and calibrations, in addition to current judgments.”

Read the guide: ‘Brexit and IFRS 9 Financial instruments – expected credit losses’

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