The International Accounting Standards Board (IASB) has published its draft rule updates following a request by the G20 in 2009 to have banks recognise their losses earlier. There is perceived to be a 'too little, too late' problem whereby banks currently do not adequately prepare for expected losses. These new rules would have banks provision for already-incurred losses as well as some expected losses.
The updates would bring the IASB rules closer into line with the US Financial Accounting Standards Board and would affect banks in over 100 countries, including the UK and the European Union as a whole. Banks and corporates will be signficantly affected, while short-term trade receivables are likely to feel less impact.
KPMG's Chris Spall observed:
This is a welcome change because most banks’ credit systems treat these exposures in a similar way. Credit risk is at the heart of a bank’s business and the proposed model is expected to have far-reaching implications for their credit systems and processes. Banks may face significant implementation issues.