News on IFRS: July/August 2015

Our latest IFRS news contains some information about revenue recognition, pension accounting requirements and revenue recognition.

IASB proposes clarifications to IFRS 15

The IASB has proposed amendments to IFRS 15 in some of the areas discussed by the TRG. These areas include accounting for licences, principal versus agent guidance and practical expedients on transition. The proposed amendments differ from those suggested by the FASB. Sallie Deysel from Accounting Consulting Services brings us up to speed on the ED.
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IASB issues ED on pensions

Richard Davis from Accounting Consulting Services brings us up to speed on the new Exposure Draft proposing amendments to IAS 19 and IFRIC 14.
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Revenue TRG weighs in again on IFRS 15 implementation issues

The Revenue Transition Resource group (TRG) continues to debate implementation issues related to the new revenue standard.
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Cannon Street Press

  • Insurance and IFRS 9
  • IFRS Implementation Issues
  • Fair value Measurement
  • IFRS 3 post implementation review
  • Financial Instruments with characteristics of equity

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IFRS rejections in short – IAS 2

Yelena Belokovylenko of Accounting Consulting Services examines the practical implications of IFRIC rejections related to IAS 2.
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In brief – A look at current financial reporting issues

IFRS in brief

  • Consequences of the Greek financial crisis
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  • Accounting for priority review vouchers (pharma industry)
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PwC Actuarial Services Newsletter – July 2015

The PwC Actuarial Services Newsletter is a joint venture of three of our worldwide PwC actuarial practices. In recent years, there have been a number of collaborations on client projects, initiatives and content development between the three entities, Switzerland, Germany and the Netherlands. This newsletter will examine current topics of the industry from different regional and thematic perspectives, and is aimed at insurance professionals working in or closely with actuarial departments.

Topic 1: How do you eat an elephant?

IFRS 4 Phase 2 requires more from insurers than Solvency II. Insurers that are well advanced in their preparations for IFRS 4 Phase 2 estimate that the costs of implementation of IFRS range from around the same as for the implementation of Solvency II to costs that are three times as much.

Topic 2: What does phase 2 of IFRS 4 mean for general insurers?

IFRS 4 Phase 2 is expected to be finalised during 2016, however there is enough certainty around key elements of the standard to start thinking about what it will mean for general insurers. Many believe that the impact on standard general insurance contracts will be minimal, there is even a ‘simplified’ approach for short term contracts which suggests relatively low impact; we question, though, whether this conclusion is correct.

Topic 3: Need for quality in actuarial reserving GI

Getting loss reserves right is crucial. Not only to avoid major run-off losses when trends in the underlying claims are discovered too late, it is also obligatory for Solvency II and IFRS 4 Phase 2 to assure the quality and reliability of the calculation of best estimates and inherent uncertainty in technical provisions. In some heavy-tailed LoBs reserving is the most important driver for pricing the business correctly, e.g. in some areas of commercial liability books.

Interview on reserve quality with Dirk Grönke, new Director for Actuarial Services in Germany

On April 1st, Dirk Grönke started as a director with PwC Actuarial Services in Germany. His focus is on actuarial consultancy for non-life (re-)insurance undertakings and the quantitative areas of risk management. One of his main hobbies is soccer, the active as well as the passive part.

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If you would like to discuss one of the topics, please contact me.

IFRS 9: all users affected

The new financial reporting standard for financial instruments doesn’t just impact banks. Implementing the expected loss impairment model involves time and investment, while the new hedge accounting rules give greater scope. Users should address IFRS 9 in good time.

Topics of this article

  • Classifying and measuring financial assets
  • Classifying and measuring financial liabilities
  • Impairment
  • Overview of financial assets
  • Hedge accounting

Read more here.

Summary

The implications of IFRS 9 can be summarised as follows:

  • IFRS 9 affects all types of entities.
  • Certain requirements, especially the introduction of the new expected loss impairment model for large portfolios, will require a great deal of effort.
  • The new hedge accounting rules offer attractive simplified approaches and new options for industrial companies.
  • Entities should begin to assess the implications of IFRS 9 for their organisation as soon as possible, as implementation can take a considerable amount of effort and resources, and changes to systems and processes.

Credit Risk Series (1): Overview of Regulations and Accounting Standards

Since the financial turmoil of 2007/08, regulators and standard setters have become increasingly aware of credit risk and credit risk valuation and never tire of publishing new standards and regulations. Over the next few years, several new requirements will become effective. To this end, I will be looking at these credit risk standards and how they affect financial institutions in a series of blogs. Implementation of some new requirements has already started. For efficiency reasons, it would be desirable to ensure consistency in implementation across all standards, if at all possible. An early start on analysing the new requirements and impacts is recommended because the devil is in the details.

It is all about credit risk

Financial institutions have started with (pre-)implementation work for the new IFRS 9 Financial Instruments standard, which replaces IAS 39 and which will become effective as of 1 January 2018. The standard consists of three parts, namely, a model for the classification and measurement of financial instruments, a forward-looking expected credit loss impairment model and a reformed approach for hedge accounting.

In association with this new standard, in February 2015 the Basel Committee published the consultation paper for the Guidance on accounting for expected credit losses. Comprising 11 principles, the guidance sets out the supervisory requirements on sound credit risk practices associated with the implementation and ongoing application of accounting standards that involve expected credit risk losses.

The Revisions to the standardised approach for credit risk were published for consultation in December 2014. The main objective is to reduce reliance on external credit ratings and to replace such with a number of risk drivers. The revisions should achieve more granularity in various risk profiles and thus reduce variability in risk-weighted assets.

The standard on Capital requirements for bank exposures to central counterparties was published in April 2014 and will apply as of 1 January 2017. In the meantime, the interim capital requirements will remain effective. Compared to the interim requirements, a new approach for determining the capital requirements for bank exposures to qualify central counterparties is now included. An explicit cap on the capital charges will apply for bank exposures to qualified central counterparties and the treatment for multi-level client structures is also specified.

Related to this standard is The standardised approach for measuring counterparty credit risk exposures, published in March 2014 and also effective as of 1 January 2017. The standard comprises a non-modelled standardised approach for the measurement of counterparty credit risk associated with OTC derivatives, exchange-traded derivatives and long settlement transactions. The new standard replaces all previous methods.

And finally, in July 2015 the Basel Committee published for consultation the Review of the credit valuation adjustment (CVA) risk framework. The objective is to include all risk factors relevant to CVA, not only the credit spread risk and associated CVA hedges. Additionally, convergences to the valuation practice under the accounting standards are targeted as is consistency with the Fundamental review of the trading book, the revision of the market risk framework. Consequently, instead of having a stand-alone CVA approach, the goal is to have an integrated view including the market risk framework.

What are the main changes?

Throughout this series of credit risk blogs, I will go more deeply into the details of the new requirements and changes. So, for the time being, I will only give a brief summary of the most important changes.

What all the new requirements have in common is that they aim for greater integration and a holistic view of the risks. The intention is that such risks will not be considered from a stand-alone perspective any longer. The new requirements will integrate more forward-looking elements and market risk drivers. In parallel, they seek more comparability by introducing standardised single calculation approaches.

Starting with IFRS 9 Impairment, the biggest change is to move to an expected credit loss model relying on the relative change in credit risk. If the credit risk increases, the expected credit loss over the whole lifetime has to be recognised.

Revisions to the standardised approach for credit risk aim at reducing the reliance on external credit ratings as used in the current standardised approach. These are replaced with a limited number of risk drivers. The goal is also to achieve better comparability to the internal rating-based approach with respect to definitions and treatment of similar exposures.

In the Capital requirements for bank exposures to central counterparties and The standardised approach for measuring counterparty credit risk exposures, single and standardised approaches are introduced replacing the various current methods.

Regarding CVA, the goal is to align the models and calculations with accounting practice and to integrate them into the new market risk framework in order to achieve a holistic view of CVA.

Who is affected?

Whereas IFRS 9 affects all companies that hold financial instruments, especially banks and insurance companies, the Basel Committee regulations only affect banks. While banks are looking for basic consistency in implementation of the IFRS 9 Impairment standard with the Basel Committee regulations, and wish to leverage as much as possible from there, the insurance companies are seeking consistency and leverage with the Solvency II framework. Nonetheless, the insurers are also looking at the Basel Committee regulations as they feel there is some implicit pressure on them to achieve more consistency where possible with the Basel Committee’s recommendations.

What actions are required?

Of course, becoming familiar with all the published and proposed standards and regulations as early as possible will be advantageous, however, performing a thorough analysis of differences and similarities of all the guidance, on the one hand, and a gap analysis on what already exists in your financial institution, on the other, is the obvious next step. My experience shows that the main challenge is to integrate the different perspectives and needs from risk, accounting, data and most crucially, IT systems, and to allocate sufficient time and staff to do that.

If you have any questions, please do not hesitate to contact me.

The audit committee

A practical guide for audit committee members on the requirements and responsibilities of the audit committee.

In this publication, we summarise the current legal, regulatory and de facto provisions as well as the daily routine of the audit committee. In the process, we shine a light on a variety of aspects concerning the audit committee in all of the economic sectors relevant to Switzerland, from industrial undertakings to financial institutions.

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The audit committee

News on IFRS: June 2015

Our latest IFRS news contains some information about conceptual framework, segment disclosures, and IFRS 9 financial instruments.

IASB exposes revised Conceptual Framework

The IASB issued its exposure draft on the conceptual framework. Maria Constantinou looks at this key proposal and potential impact on standard setting.
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Segment disclosures to bring more insight on the ‘management view’

Derek Carmichael, Global Accounting Consulting services looks at the changes proposed by the IASB in response to the Post Implementation Review (PIR) of IFRS 8 to increase value to users.
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EFRAG endorses IFRS 9 but recommends close monitoring

European financial reporting group says assessment of IFRS 9 is qualitative, not quantitative, but urges implementation without delay.
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Cannon Street Press

  • Clarification to IFRS 15
  • Disclosure Initative
  • FICE research project

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NIFRICS by the numbers; IFRS rejections in brief starting with IAS 1

Ernesto Mendez of Global Accounting Consulting Services examines the practical implications of IFRIC rejections related to
IAS 1.
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In brief – A look at current financial reporting issues

IFRS in brief

 

News on IFRS: May 2015

Our latest IFRS news contains some information about revenue recognition and employee benefits.

IASB proposes deferral and continues to look at clarifications

The IASB has proposed moving the effective date of IFRS 15 back by one year to 1 January 2018. An exposure draft on the effective date is expected in May 2015 followed by an exposure draft on other clarifications in Q3 2015.
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Employee benefits back in the spotlight

Richard Davis from Accounting Consulting Services brings us up to speed on renewed attention at the IASB on employee benefits.
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Cannon Street Press

  • Disclosure initiative
  • Annual improvements 2014-2016
  • Fair value of quoted investment

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Know your IFRS ‘ABC’: Z is for Zoos… not in the scope of IAS 41, but what is?

Ruth Preedy from PwC’s Accounting Consulting Services examines the scope of IAS 41, a standard that even the most experienced accounting experts don’t know much about.
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In brief – A look at current financial reporting issues

IFRS in brief

 

News on IFRS: April 2015

Our latest IFRS news contains some information about revenue recognition, leasing and IFRS 15 implementation issues.

Boards propose changes for revenue; FASB delays effective date one year

The IASB and FASB continued to discuss implementation issues related to the new revenue standard in March. The FASB met separately to delay mandatory effective date for US GAAP by one year to 2018 with early adoption permitted in 2017.
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Balance sheets to swell as new lease proposal ready for ballot

Jessica Taurae, Partner in Accounting Consulting Services, looks at the status of the IASB’s long running project on leasing.
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Revenue TRG continues debate

The Revenue Transition Resource Group (TRG) met for the fourth time in March to discuss implementation issues related to the new revenue standard.
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Cannon Street Press

  • IC discussion of IFRS 11
  • Leasing project
  • Disclosure initiative
  • Conceptual framework

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Know your IFRS ‘ABC’: Y is for Yields on government bonds and other discount rate issues

Frances White from PwC’s Accounting Consulting Services in Australia takes a look at discount rates for provisions and impairment, and the effect of an uncertain economic climate.
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Are you interested in more regular updates?

In brief – A look at current financial reporting issues

IFRS in brief