Four years might seem a long time, but it's not when you think of all the things a firm has to achieve to be IFRS 9 compliant. This is how long financial institutions have to prepare for IFRS 9. After years of debate, the International Accounting Standards Board (IASB) agreed on 20 February to ask firms to be wholly compliant by 1 January 2018.

While the final standard has yet to be formally issued, firms now have a fixed date to work towards which should galvanise CFOs and CROs to prepare for the big push towards implementation. The IASB notes that 'early adoption' remains an option which those firms more advanced in their preparations may well choose to take. But such is the scale of the changes brought in by IFRS 9, we think most firms will be satisfied that meeting the 2018 deadline is achievable – with a bit of effort. After all, the 'to-do' list remains as daunting as ever:

  • Deloitte's upcoming Impact Study demonstrates that IFRS 9 has the potential to more than double currently reported impairments. Management should already be in the process of establishing the quantitative and qualitative impacts of the change.
  • Data availability must be assessed in order to capture the historical data and trend information needed to build a forward-looking view of impairment. For many portfolios, these data were previously lacking or estimated. New or upgraded systems may be needed to store, manipulate and report all of this information.
  • To identify increases in credit risk and to measure lifetime expected losses, firms may need new models and processes or at the very least, adapt existing risk models.
  • Assuming a parallel run of one year is enough to iron out all the bumps in these new processes and systems, firms' IFRS 9 capability must be in place by the end of 2016. This will also give management sufficient time to understand the assumptions, judgements and sensitivities.
  • The interaction of IFRS 9 with regulatory capital requirements is likely to be complex and vary by firm. Management need to invest time to understand fully the interactions between these two measures.
  • The 2018 go-live date will allow management to embed other significant regulatory projects such as CRD IV, COREP and FINREP, and across the Eurozone, address the current Asset Quality Reviews, but each of which also demands time and attention from risk and financial functions. Additional challenges from IFRS 9 could strain the ability of firms to be compliant with this multitude of regulatory initiatives if they are not delivered efficiently and effectively.
  • Stakeholders will require time to understand fully the changes (including accounting and regulatory capital as well as the business impact) before the mandatory effective date. Our guidance is to start preparation now.

The mandatory effective date of 1 January 2018 allows financial institutions that have already started their IFRS 9 implementation efforts to continue and retain the current momentum with a renewed focus. Those which are yet to start now know the hard deadline. As IFRS 9 is arguably the most important part of the IASB's response to the financial crisis, this is one that firms need to nail. And nail convincingly.

For further information, visit  IAS Plus and read our observer notes from the IASB's meeting.

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