The CFRR organized a virtual workshop “IFRS for Regulators: COVID-19 Impacts & Responses” under STAREP program using the Webex platform on Tuesday 30 June 2020, at 14:00. The event was attended by around 70 participants.
This workshop aimed to inform regulators about recent financial reporting and regulatory guidance, with a particular emphasis on those aspects of accounting and reporting that are currently most relevant to the financial statements of listed companies, especially banks.
During this workshop, Messrs. Darrel Scott, Board Member of the International Accounting Standards Board; David Gruenberger, Head of Unit at the ECB; and Mike Wells, Professor of Practice at Imperial College Business School, and Ms. Laure Guegan, Partner at EY, discussed about the impact of the changes brought by the pandemic as well as the regulatory responses to financial reporting under IFRS and regulatory frameworks, the agenda and selected presentation of the workshop is attached.
The IFRS Foundation and the International Accounting Standard Board published guidance how to apply standards in the light of the pandemic. In particular, it has published education materials in accounting for expected credit losses in the current environment under IFRS 9 and for leases as a result of rent concessions granted as a result of Covid-19. During the difficult period the IFRS foundation and the International Accounting Standards Board continue to be available to stakeholders: meetings are public, and the Board is progressing time sensitive projects.
European institutions have provided accounting guidance as well, for taking into account government guarantees, full or partial, and banks’ issued moratoria. Guarantees are often designed with a portfolio-level loss cap in addition to loan level cap. On the banks side, moratoria need to be broadly applied and not connected to individual creditworthiness and need to offer the same conditions to all exposures.
European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) have issued joint-statements to provide guidance on the accounting consequences of the Covid-19 outbreak and national supporting measures:
- If measures are temporary and the net economic value is not significantly affected, then the modification would be unlikely to be considered as substantial for derecognition; and
- Payment moratoria and public guarantees should be factored in when assessing the Significant Increase in Credit Risk (SICR) and estimating ECL.
The European Central Bank (ECB) has sent a letter to banks to require a collective approach when evidence of SICR is not yet available at the individual level. It also required banks to have specific year forecasts anchored on ECB staff projections and updated timeline, when establishing their macroeconomic forecasts.Companies reporting on their financials should assess and report on their going concern -the continuation of their operations in the future. In case of material uncertainties or significant doubt they should make appropriate disclosures. They should also assess qualitatively and quantitatively the effects of the measures that were prompted by the Covid-19 pandemic and publish the impact in their interim financial reporting disclosures.
All this guidance comes when the cost of risk (CoR) observed in Europe for the first quarter of 2020 tripled, with a significant dispersion between countries and banks; CoR is dependent on a multitude of factors, linked to the type and the geography of the banks’ operations.
Given the uncertainty on future impacts, it is essential to have banks taking into account all factors, whether at the individual level, or at sectorial level when assessing the CoR, and discloses clear information about macroeconomic scenarios, loans’ moratoria, and government relief measures and changes and outlook in ECL.
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