Bracing for Impact of IFRS 9: Impairment Principles, ECL Framework and Requirements
Location: Prague, NH Hotel Prague
Lecturer: Jean-Bernard Caen
Key points / questions answered:
Who are the wolves waiting for your first impairment figures?
Real and fake compliance: What can go wrong?
What are the alternative credit risk models for assessing multi-period PDs?
How to transition from Through-the-Cycle PDs to Point-in-Time PDs?
How to make credit risk parameters sensitive to economic cycles?
What are the good questions to ask now?
How to assess your priorities?
The purpose of this seminar is to understand and improve your mechanism of impairment as required by IFRS 9, the new accounting standard for financial instruments, in effect from January 1st, 2018.
Because it includes revolutionary new features, extensive post-deadline work will be needed to reach full compliance. These features include expected credit losses over the lifetime of transactions, integration of a forward-looking stance and numerous judgmental calls.
We start with a brief history of accounting, the creations of the International Accounting Standard Board, the International Financial Reporting Standards, IAS 39 and finally IFRS 9. This will give you the historical roots and intentions that led to IFRS 9.
Then we review IFRS 9 phase 1 "Classification and Measurement" in order to carefully position the impairment process, or IFRS phase 2, in its alignment. We are now ready to uncover Phase 2 objectives, perimeter of application and major characteristics.
Phase 2, impairment, is the answer by the IASB to the concern raised by the G-20, that the credit provisioning approach in force during the crisis was "too little, too late". And the new Expected Credit Loss model for the recognition and measurement of impairments does address this concern by accelerating the recognition of losses through powerful new principles.
Once the impairment principles have been described and understood with the help of some games, IFRS 9 modelling requirements appear more explicitly. At this stage, we enter the realm of credit risk modelling. We review the major approaches, from historical loan-losses to regulatory models to credit VaR, with a number of practical exercises. The pros and cons of each modelling approach are assessed in regards to IFRS 9 requirements.
Naturally, a specific attention is given to the Supervisor's posture regarding the implementation of IFRS 9 in banks. We review the BCBS Guidance on credit risk and accounting for expected credit losses, and its more recent paper on the Regulatory treatment of accounting provisions.
Finally, we look at implementation and governance issues from a number of viewpoints: accounting and regulatory supervisors, banks and consulting firms and auditors. A particular attention is given to the technology and data-related issues, and to strategic considerations dealing with the management of P&L volatility and disclosures.
IFRS 9 is now in full force. At the end of the training, each participant has acquired a clear understanding of IFRS 9 impairment principles and modelling requirements and is ready to contribute significantly to running and improving the impairment process.
09.00 - 09.15 Welcome and Introduction
09.15 - 12.30
Birth and overview of IFRS 9
Brief history of accounting
The accounting institutions and the financial crisis
Overview of IFRS 9 principles
Phase 1, classification and measurement
Overview of impairment requirements
The Expected Credit Losses concept
Staging and the notion of Significant Increase of Credit Risk
Lifetime PDs and forward-looking stance
12.30 - 13.30 Lunch
13.30 - 16.40 Credit risk modelling
Principles of credit risk measurement
Credit risk parameters
Measuring Probability of Default
Portfolio effects and concentration
Parametric approaches like IRB models
Non-parametric approaches like Credit VaR
09.00 - 09.15 Recap
09.15 - 12.30 From credit risk modelling to impairment calculations
Assessing a Significant Increase in Credit Risk
From 1 year PDs to Multi-periods PDs
From Through-the-cycle to Point-in-Time risk parameters
Risk parameters sensitivity to the state of the economy
ECL as the weighted average of multiple scenarios
Cost-benefit analysis of possible simplifications
Steps towards a fully compliant impairment model
12.30 - 13.30 Lunch
13.30 - 16.30
IFRS 9 and the regulators
Ambition of BCBS on the matter
BCBS guidance on credit risk and accounting for ECL
Regulatory treatment of accounting provisions
Expected impact of the regulation
Implementation and governance challenges
Implementation challenges as seen by supervisors and banks
Implementation challenges as seen by consulting and IT firms
Governance challenges: Data and proxies, reinventing the impairment process, auditing models, IT and systems issues