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Back to basics: Unlocking the secrets of IFRS 9

Writing for the Financial Services Faculty, Grant Thornton Head of Risk and Finance Assurance, Retail Banking Shuvo Banerjee looks at how the new accounting standard has impacted bank risk models.

The introduction of the new accounting standard on Impairments (IFRS 9) on 1st January 2018 was intended to correct the failings of the previous standard, IAS 39, which was deemed to have been partly complicit in exacerbating the financial crisis of 2008.  

The perceived problem, with the previous standard IAS 39, was that it appeared to have a restricted view on how to report bad loans. It was designed to only look at loans that had already been impaired at the Balance Sheet date. It was a simplistic approach but easy to understand. However, it was not forward-looking, readers of the Balance Sheet were not guided towards the pipeline of loans that that had the potential to be impaired in the coming months past the balance sheet date.