The business houses, particularly the banking sector, in the Gulf Co-operation Council (GCC) need to integrate new accounting standards at an early stage itself, according to Ernst and Young (EY).
“IFRS 9 has a far more reaching impact on banks than any other organisation. The new rules are set to push banks to take a hit on their balance sheets for losses they expect to make in the future,” Muhamad Qaiser, executive director, Financial Accounting Advisory Services, EY Qatar, said at a recently held conference.
The new standard is compulsory for banks and other organisations reporting under IFRS for annual periods beginning on or after January 1, 2018.
Significant changes have also been made to the recognition, classification and measurement of financial assets (including hybrid instruments), moving from the 4-category approach in IAS 39 to a new 2-category approach, he said, adding hedge accounting, which is essential in managing profit and loss volatility for many banks, has also been completely reformed to address inconsistencies and weaknesses identified in IAS 39.
“Banks and insurance companies that hold large portfolios of loans on their books will be most affected. Banks will face the cost of updating their systems and processes to move from calculating incurred loss to expected loss,” according to Imtiaz Ibrahim, partner, Financial Accounting Advisory Services, EY Qatar.
Financial services organisations and banks in particular, will need to manage carefully how they communicate the implementation of the new model to their shareholders and other key stakeholders and they should also recognise that the new model will require significant development of systems and processes, Firas Qoussous, office managing partner, EY Qatar said.