The Essential GAAP Update for Banks and Other Financial Institutions (2019)
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Banks and other financial institutions have unique and sometimes complex transactions that follow special accounting rules not applicable to other companies. Furthermore, the entire industry has been subject to increased regulatory scrutiny in recent years.
This one-day seminar offered via Executive Education, designed for financial executives, managers and others responsible for accounting and reporting by banks and other financial institutions, provides an in-depth update of recent developments impacting the financial services industry as a result of recent standard setter and regulatory activities. Through the use of class exercises and illustrative examples, these developments are not only “presented”, but also “discussed” to emphasize the impact on these unique entities.
The program covers hot topics, issues and trends in accounting and reporting for banks and other financial institutions. Regularly updated throughout the year as new developments occur, sample subject matter includes:
- Standards generally effective in 2018 including classification of deferred taxes, equity method accounting, share-based payments, contingent options in debt instrument, and novation of derivatives in hedging relationships
- Financial Instruments
- Revenue from contracts with customers
- Other ASUs and FASB projects generally effective in 2019 and beyond
IFRS 9 for Banks and Other Financial Institutions
IFRS 9 introduces a new business model-based approach to classification and measurement of financial instruments; an impairment model based on expected losses and simplification of hedge accounting. In this intensive one-day workshop we will look at the changes in IFRS 9 and its impact on financial statements.
Key Learning Outcomes
- Understand the principles in relation to classification of financial assets and financial liabilities which drives their subsequent measurement
- Appreciate the accounting methodology for embedded derivatives and when they should be separated from the host contract
- Analyze the requirements of expected credit loss impairment model
- Understand the impact of different types of hedges on financial statements
- Analyze the presentation and disclosure of financial instruments in the financial statements of banks and similar financial institutions
Introduction to IFRS 9
The aim of this section is to provide a background to IFRS 9, its effective date, an overview of transition requirements and to introduce the key topics covered in the standard.
- Introduction to IFRS 9: Effective date and transition requirements
- Key topics in IFRS 9: Recognition of financial instruments, classification and measurement, impairment,
- de-recognition and hedge accounting
- Case study: Application of the principle of substance over legal form to the recognition of financial liabilities and equity instruments
Classification and Measurement of Financial Assets and Financial Liabilities
The aim of this section is to explain the classification of financial assets and financial liabilities, initial and subsequent measurement and de-recognition principles.
Classification and measurement of financial assets
Recap of IAS 39 classification and measurement: Fair value through profit or loss, held-to-maturity, loans and receivables, and available-for-sale financial assets
- IFRS 9 classification: Amortized cost, fair value through profit or loss and fair value through other comprehensive income – different treatment for debt and equity instruments
- Fair valuation: Credit valuation adjustment, debit valuation adjustment and fair value hierarchy
- Embedded derivatives: Simplified approach in IFRS 9
- De-recognition of financial assets: IAS 39/IFRS 9 complexity, IFRS 9 disclosure changes
- Case study: Analyze the impact on the financial statements of applying the business model and cash flow characteristic tests which determine the classification of financial assets
Classification and measurement of financial liabilities
- IFRS 9 classification: Fair value through profit or loss, amortized cost
- Own credit risk issue: IAS 39 anomaly, IFRS 9 accounting for fair value movements due to changes in own credit risk of financial liabilities at fair value through profit or loss
Impairment of Financial Assets
The aim of this section is to review the principles contained in the expected credit loss impairment model and analyze its impact on loss provisioning within the financial statements.
Application of IFRS 9 impairment model
- Introduction to IFRS 9 impairment model: Scope of the model, financial and non-financial impact
- Three-stage approach: 12-month expected credit losses, lifetime expected credit losses, calculation of interest income
- Assessment of significant changes in credit risk
- Individual and collective assessment of impairment
- Default: Definition, changes in the risk of default and estimating expected credit losses
- Purchase/origination of credit-impaired financial assets
- Simplification and practical expedients: Trade receivables, contract assets, lease receivables and low credit risk assets
- Implementation challenges: Data availability, estimates, judgements and assumptions
- Case study: Measurement of IFRS 9 impairment and its impact on loss provisioning in financial statements
The aim of this section is to evaluate the issues with IAS 39 hedge accounting and how IFRS 9 adopts a more principles-based approach.
Introduction and background to IFRS 9 hedge accounting
- Recap of IAS 39 hedge accounting: Types of hedges – fair value, cash flow and net investment hedge, accounting for different types of hedges
- Background to IFRS 9: Issues with IAS 39 hedge accounting, primary areas addressed and macro hedging
IFRS 9 updates
- New hedged exposures: Risk components, synthetic positions, net positions, equity investments at fair value through other comprehensive income
- Use of hedging instruments: Non-derivatives, accounting for time value of options, forward points and foreign currency basis spread
- Hedging relationship: Hedge effectiveness, modifications, discontinuation
- Disclosures: Amendments to IFRS 7 financial instruments disclosures
- Case study: Fair value and cash flow hedge accounting and analysis
Who should attend
The course is designed for those who use financial instruments under IFRS or are intending to do so in the future, including accountants, staff working in treasury, internal and external auditors, analysts and other finance professionals interested in improving their understanding of the impact of financial instruments on financial statements.