What does the transition from IAS 39 to IFRS 9 mean for an organisation?

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Fraser Hall, Head of Service Delivery EMEA, AxiomSL

November 6, 2015 – Fraser Hall, AxiomSL’s EMEA Head of Service Delivery, gave the following interview about International Financial Reporting Standard 9 (IFRS 9) to the Center for Financial Professionals ahead of the IFRS 9 Forum in November.

1) Fraser, can you tell the Center for Financial Professionals’ readers a little bit about yourself and your professional experience?

My background is in designing and implementing solutions for regulatory reporting and related requirements, including Financial Reporting (FINREP), Common Reporting (COREP) and the Firm Data Submission Framework (FDSF).

At AxiomSL, I am responsible for client account management and project delivery. I also head up our client support team in Europe, the Middle East and Africa (EMEA). Prior to AxiomSL, I worked for EY and, before that, Morgan Stanley.

2) With the transition from IAS 39 to IFRS 9 fast approaching, could you provide the Center for Financial Professionals with an overview of the main changes the industry is soon to face?

IFRS 9 will fundamentally change the way firms do their accounting. Historically, accounting has been about analyzing the past performance of financial instruments. As part of IFRS 9, firms are now being asked to adopt a forward-looking approach to accounting. They will need to model future events in the macroeconomic environment and calculate the impact these events are likely to have on their credit exposures. This will have a significant impact on the operational processes and technology they use to do their accounting.

3) With these changes in mind, what challenges do you see on the horizon?

The move to a forward-looking approach to accounting under IFRS 9 presents many challenges for firms. In order to accurately model future trends in the market, they will need a wide range of macroeconomic data that has not historically been required for accounting purposes. Firms must ensure they have a software solution for IFRS 9 that can integrate this macroeconomic data with the many other types of data that are required, including internal risk and financial data.

As well as the data challenges, IFRS 9’s focus on the future performance of financial instruments means that firms will no longer be able to use the credit loss models they have relied on for some time. They will now need to either adapt these models or adopt entirely new models.

A further challenge presented by IFRS 9 is its vagueness. The standard leaves a lot of room for interpretation. It is therefore important that firms work with a flexible calculation and reporting platform that can easily and quickly accommodate different interpretations of the requirements.

4) In your opinion, what are the key advantages when integrating stakeholders (business, I.T.) in the IFRS 9 transition?

IFRS 9 will affect a wide range of stakeholders, including those in risk and finance, the business and IT. It is important to bring all of these groups together at the start and to explain the requirements to them and the changes that will need to be made. By approaching IFRS 9 in this way, it will be easier to get everybody’s buy-in and to ensure they are up to speed when they are required to contribute to the change program.

5) At the Center for Financial Professionals’ IFRS 9 Forum you will be discussing the transition from IAS 39 to IFRS 9. Without giving too much away, can you explain the main focus over the next 6 months towards implementation?

IFRS 9 is quickly rising to the top of the agenda at many firms. People realize the new standard will have major implications for them and they need to start preparing now.

Over the next six months, the focus at most firms is on gaining a more detailed understanding of how they will be impacted by IFRS 9. Firms are investigating the gaps in the data they currently use and the suitability of their incumbent credit loss models and calculation and reporting platforms. Once they have defined the changes they need to make, I expect firms to kick off their change programs in 2016.