MONOCLE INSIGHT

IFRS 9 Impairment Methodology Optimisation

Stories>IFRS 9 Impairment Methodology Optimisation

The implementation of the complex forward-looking impairment approach of IFRS 9 is a considerable challenge for many financial institutions in both the banking and insurance industries. Whilst financial institutions around the world have already implemented their IFRS 9 accounting standards – as required by their respective regulators, with the deadline for implementation generally coming into effect on the 1st of January 2018 – many organisations have begun to realise, especially during turbulent macroeconomic periods, that their IFRS 9 impairment models and methodologies are sub-optimal, resulting in an unfavourable impairments position.

In a recent project, a large banking client tasked Monocle with reviewing specific parts of its impairment implementation, particularly with regard to the calculation of the Effective Interest Rate and implementation of the Significant Increase in Credit Risk methodology, as well as other parts of the implementation. After conducting a review of the existing processes, the Monocle project team combined its extensive understanding of the IFRS 9 requirement with its deep modelling and mathematical knowledge to implement solutions that are sound in principle and in alignment with the IFRS 9 requirements.

These solutions ultimately provided the client with an accurate, consistent and timely view of impairments and ensured that business leaders can be confident that the calculation of impairments is done in a manner that is predictable and stable, that meets all regulatory standards, and that is optimised to deliver the most profitable results for the organisation in a responsible and conservative manner.

As experts in the technical understanding of IFRS 9, particularly as it pertains to impairment calculations and methodologies, and with the data and systems experience required to robustly allow financial institutions to successfully embed the IFRS 9 standards within their organisation, Monocle is perfectly positioned to review, diagnose and adjust any sub-optimal processes related to the calculation of IFRS 9 impairments.