Understanding IFRS 9 BVFA/ABAV June 9th, 2015

Transcription

1 Understanding IFRS 9 BVFA/ABAV June 9th, 2015

2 Timeline effective 2018 but t the only change IFRS Standard (1) onwards Insurance contracts IASB re-deliberation and final standard? Effective date? Financial instruments Classification & measurement Impairment Hedge accounting Comprehensive IFRS 9 standard issued July 2014 Mandatory effective date of 2018 Macro hedge accounting Discussion paper comments due in October 2014 ED, final standard and mandatory effective date are still to be confirmed Revenue IFRS 15 issued May 2014 Mandatory effective date 2018 (1) Subject to EU endorsement, for relevant entities Today 2

3 1 2 What is it all about? Which information is most relevant for financial instruments? FV or amortised cost? When to recognise impairments on financial assets and how much? Assets Lending activities Investments Bonds Equities Lease receivables Trade receivables Derivatives Cost of sales/interest expense Impairments FV Assets FV Derivatives Equity Other Comprehensive Income Liabilities Funding Sources Derivatives Income statement Revenue/ Interest income FV Assets FV Derivatives 1 For assets at fair value, where to present changes in Fair Value? Income statement or Equity (with or without recycling)? 3 What are the criteria to allow an override for rmal derivative accounting to reflect risk management and align with hedged item? 3

4 Three Phases of IFRS 9 IFRS 9: Financial instruments Phase I Phase II Phase III Phases Classification and measurement Impairments: Expected credit losses Hedge accounting IASB s view A logical, single classification approach driven by cash flow characteristics and how it s managed An urgently needed and strongly supported forward-looking expected loss model An improved and widely welcomed model that better aligns accounting with risk management Slide 4

5 Classification & Measurement Debt instruments Derivatives Equity instruments Business model hold to collect? Business model hold & sell? Trading? Solely payments of principal and interest? Fair value option applied? FVOCI 0ption applied? Amortised cost FVOCI (with recycling) FVPL FVOCI ( recycling) Scope for expected credit loss model - on balance Caption: SPPI = Solely Payments of Principal & Interest FVOCI = Fair Value through Other Comprehensive Income FVPL = Fair Value through Profit & Loss 5

6 Three stage impairment model Change in credit quality since initial recognition Incurred Losses Loss allowance Lifetime expected credit losses IFRS 9 Significant increase in credit risk Day 1 loss for all loans 12 month expected credit losses Lifetime excepted credit losses Deterioration in credit quality since initial recognition Lifetime excepted credit losses Stage 1 Performing (initial recognitions) Stage 2 Underperforming (assets with significant increase in credit risk since initial recognition) Stage 3 Non-performing (credit-impaired assets) 6

7 Volatility of collective provisions: IAS 39 vs IFRS9 Collective Provisions IAS 39 IFRS 9 2 Lower amount of provisions but earlier and more durable booking 1 Overall higher level of collective provisions 3 TTC More sensitive to ecomic cycle and more volatile over time Anticipation of adverse events Occurrence of adverse events Anticipation of adverse events Occurrence of adverse events t 7

8 Move towards a principle based hedge accounting Omission of the rigid quantitative bandwidth of % for assessing hedge effectiveness Only prospective proof (quantitative or qualitative) of effectiveness required Upper limit: 125% Effectiveness 100% Effectiveness larger than125%: Not allowed under IAS 39 and hedge accounting has to be discontinued Effectiveness smaller than 80%: Not allowed under IAS 39 and hedge accounting has to be discontinued Lower limit: 80% Test date 1 Test date 2 Time 8

9 Ecomic relationship as basis No discontinuance of hedge accounting due to the results of the assessment of hedge effectiveness, but calculation infective portions and recognition in P&L still required Effectiveness Ineffectiveness Δ SG > Δ GG 100% Δ SG < Δ GG Test date 1 Test date 2 Time Rebalancing As a consequence of ineffectiveness detected a prospective adjustment of the actual hedge ratio for the optimal hedge ratio might be necessary (IFRS 9.B (a)).! Caution: ecomic relation is mandatory 9

10 New possibilities for hedge accounting Commodity price evolution Example: Long-term supply contract for natural gas 1,2 1 0,8 0,6 0,4 0, Gas oil Fuel oil Other comp eg. transport charges Natural gas Propane spot price (USD/gallon) Hedged item Europe Brent Spot Price (USD/barrell) Source: US Energy Information Administration 10

11 But macro hedging still needs to be addressed IFRS 9 IAS 39 - Classification and measurement - Impairment - Guidance on fair value hedge of interest rate exposure of a portfolio - General hedge accounting - General model on hedging - including the sub-libor hedging prohibition - Classification and measurement - Impairment IFRS 9 allows for a policy choice Keeping compliancy to IAS 39 general hedge accounting rules Switching to IFRS 9 general hedge accounting rules on moment of transition, even if macro portfolio hedge will still be IAS 39, as the IFRS 9 version might still be incomplete 11

12 Making sense of IFRS 9 Jeroen Bockaert Director T: E: jeroen.bockaert@be.pwc.com 2013 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.