EY European IFRS banking conference ... Agenda and speakers ÈFriday, 7 June 2019 Page 1 EY...

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  • EY European IFRS banking conference Minds made for transforming financial services

    Friday, 7 June 2019

  • Agenda and speakers — Friday, 7 June 2019

    EY European IFRS banking conferencePage 1

    08:30-09:00 Registration

    09:00-09:15 Introduction — Michiel van der Lof, EY

    09:15-09:45 International Accounting Standards Board (IASB) update — Sue Lloyd, IASB

    09:45-10:30 Challenges related to Interbank offer rates (IBOR) — Tony Clifford, EY and Fiona Thomson, Goldman Sachs

    10:30-11:00 Break

    11:00-11:45 IFRS 9 — What did banks disclose? — Laure Guegan, EY with Tony Clifford, EY and Fabio Fabiani, EY

    11:45-12.15 Finance function of the future — Francois Rossouw, EY and Ladislas Tyl, EY

    12:15-12:45 Supervisory update — Nic van der Ende, European Banking Authority

    12:45-13:45 Lunch

    13:45-14:15 Integrated reporting and climate risk — Doug Johnston, EY and Rebecca Self, HSBC

    14:15-14:45 IFRS hot topics and accounting in the digital age — Marek Walendowski, EY and Jane Hurworth, EY

    14:45-15:15 Break

    15:15-15:45 The macro environment and related accounting and reporting impacts — Mark Gregory, EY

    15:45-16:15 Inside Brussels — David Doyle, EY

    16:15-16:30 Closing comments — Michiel van der Lof, EY

    16:30 Drinks reception

  • The views expressed in this presentation are those of the presenter, not necessarily

    those of the International Accounting Standards Board or the IFRS Foundation.

    Copyright © 2019 IFRS Foundation. All rights reserved.

    IFRS® Foundation

    IASB Update

    Sue Lloyd

    Vice-chair, International Accounting Standards Board

    June 2019

  • 3What I will cover

    • IBOR reform

    • Dynamic Risk Management

    • Financial Instruments with Characteristics of Equity

    • Recent Interpretations Committee activities

    • Primary Financial Statements

    • Amendments to IFRS 17

  • IFRS® Foundation

    IBOR reform

  • 5Background

    What are IBORs?

    What led to the reform?

    Potential effects?

    Interest rate benchmarks such as interbank offer rates (IBORs) play an

    important role in global financial markets. They index a wide variety of

    financial products worth trillions of dollars, ranging from mortgages to

    derivatives.

    Market developments have undermined the reliability of existing

    benchmarks. The FSB has recommended reforms. Some jurisdictions

    have made progress towards replacing existing benchmarks with nearly

    risk-free rates (RFRs).

    This has, in turn, led to uncertainty about the future of existing interest

    rate benchmarks. Such uncertainties have some market implications

    which may also affect entities’ financial reporting.

  • 6Two-phase project

    Pre-replacement issuesPhase I

    • Issues affecting financial reporting

    before the replacement of an

    existing benchmark with RFR.

    The Board identified two groups of accounting issues:

    The Exposure Draft addresses Phase I issues only

    Replacement issuesPhase II

    • Issues that might affect financial

    reporting when an existing

    benchmark is replaced with RFR.

    The pre-replacement issues are more urgent because they may affect financial reporting

    before the reform is enacted and can be addressed without knowing details of RFR.

    Therefore, the Board decided to address these issues as a priority.

  • 7Phase I – why the Board is proposing amendments

    Uncertainties around timing and

    amount of designated future cash flows may

    affect some hedge accounting

    requirements.

    Entities could be required to

    discontinue hedge accounting. Entities

    may also not be able to designate new relationships.

    Discontinuation of hedge accounting solely due to such uncertainties could

    produce information that

    would not be useful to users of financial

    statements.

    The Board decided to propose

    amending some hedge accounting

    requirements during this period

    of uncertainty.

    Uncertainties arising

    from the reform

    Potential effects on

    financial reporting

    What is the

    Board’s view? As a result…

  • Find out more

    8Which issues are addressed?

    • Reform creates uncertainty about timing/ amount of future cash flows based on IBOR.

    • How to consider uncertainty when assessing if future IBOR cash flows are highly probable?

    Highly probable requirement

    • IFRS 9 requires the existence of an economic relationship; and IAS 39 expectation of offsetting between hedged item and hedging instrument.

    • How to consider uncertainties from reform?

    Prospective assessments

    • If the hedged item is a risk component, then it must be separately identifiable.

    • Reform may impact market structure and therefore ability to identify a risk component.

    Risk components

    Other hedge accounting requirements would not be changed

    Until uncertainty is

    resolved assume cash

    flows based on

    interest benchmark do

    not change

    Separately identifiable

    required only at

    inception

  • 9Timeline and next steps

    Mandatory

    effective date

    ED

    published

    Phase I

    JAN

    2020

    Q4

    2019 JUN

    2019

    MAY

    2019

    Comment

    period ends

    Publish final Phase I

    amendments

    Proposed effective date

    Annual periods beginning on or after 1 January 2020. Earlier application is permitted. The comment

    period and effective date reflects the urgency of this issue.

  • 10Phase II – replacement issues

    The staff is currently assessing the potential issues arising in Phase II.

    At the time of the Board’s discussions leading to the Exposure Draft, the

    specific conditions and details of the replacement RFR have yet to be

    finalised.

    Therefore, the Board decided to monitor developments in this area and assess

    the potential implications as more information becomes available.

    Examples of issues raised by stakeholders include:

    • Derecognition vs. modification: whether the amended contract should be accounted for as a

    modified, derecognised or ‘continuing’ financial instrument and any resulting effects on the effective

    interest rate.

    • Change in hedge documentation: whether amending hedge documentation to reflect RFR as the

    new hedged risk would trigger discontinuation of hedge accounting and resulting effect.

    • Non-FI-related implications: whether IBOR reform will impact areas such as lease accounting,

    insurance, intangible assets, etc.

  • IFRS® Foundation

    Dynamic Risk Management

  • 12Dynamic Risk Management (DRM)

    • Improve information regarding interest rate risk management and how interest rate risk management activities affect the entity’s current and future economic resources

    Objective

    • Recognition, measurement and presentation aspects of the core model tentatively agreed by the Board

    Work completed

    • July 2019 – Discuss operational simplifications, disclosure and demonstrate the completed core model

    • 2nd Half 2019 – Outreach on core model

    Next Steps

  • 13Dynamic Risk Management (DRM)

    At this juncture the Board has decided not to issue a formal due process document

    Outreach will involve discussions with relevant stakeholders based on tentative decisions to date to obtain feedback on those decisions

    The Board will consider the specifics of outreach in the coming months

    Based on feedback received, the Board will determine next steps

    Outreach

  • IFRS® Foundation

    Financial Instruments with Characteristics of Equity

    (FICE)

  • 15FICE—Project Overview

    • IAS 32 Financial Instruments: Presentation works well for most financial instruments, but presents challenges for some complex financial instruments

    • limited information available to investors about equity instruments other than ordinary shares

    • no clear rationale for classification

    Problem identified

    • articulate classification principles—clear rationale

    • propose additional information through presentation and disclosure

    Board’s proposals—Discussion Paper 2018

  • 16

    Financial Instruments with Characteristics of Equity– Feedback received

    • Board’s proposals perceived as a fundamental change from IAS 32 for reasons including:

    - use of new terminology that would require significant efforts to assess potential effects and to implement if they were to be finalised

    - classification changes for particular types of financial instruments

    • General support for: - retaining a binary distinction between liabilities and equity

    - standard-setting to address known practice issues but mixed views on how

    - disclosure proposals, with particular support from investors

    • C