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Large UK banks work with users to enhance sense-making of IFRS 9
Izette Kluever, Technical Specialist in Accounting at the Bank of England, reflects on a recent addition to the IFRS 9 Expected Credit Loss (‘ECL’) disclosure landscape – a report by the Taskforce on Disclosure about ECL (‘DECL’).
We all know jokes starting with: “How many accountants does it take to …” In the case of compiling “Recommendations on a comprehensive set of IFRS 9 Expected Credit Loss (‘ECL’) disclosures” it took nine accountants of the largest UK banks and buildings societies and fourteen users. The aim was not to change a light bulb, but the effect definitely shines more light on ECL. As a user member puts it: “The Taskforce on Disclosure about ECL (‘DECL’) has been a useful forum for users to present their needs and for preparers to explain what is feasible.”
For financial institutions preparing their financial statements on an IFRS basis, the introduction of IFRS 9’s ECL provisioning, to replace IAS 39’s incurred loss provisioning, represented a fundamental change. Concepts such as staging, significant increase in credit risk and forward-looking economic scenarios were introduced. Effective disclosure to unpack ECL is essential if ECL is to be understood and used. This objective, to provide effective disclosure, led to the creation of the DECL Taskforce - a partnership between the preparer community and the investor and analyst community, sponsored by the Financial Conduct Authority (‘FCA’), the Financial Reporting Council (‘FRC’) and the Prudential Regulatory Authority (‘PRA’).