Banks should forecast losses
On Thursday, July 24, 2014, the IASB published its new standards, The Financial Times reports.
The international accounting institution has determined new tougher rules to compel the management of the banks to pay more attention to preparing their financial statements. The IASB advises the credit and financial institutions to calculate and reflect estimated expenditure for the next 12 months in the financial reporting in such a way so that to make it possible to disburse the money necessary to cover losses at any time. Banks, insurance companies and users of financial reporting should change an approach, and make a shift from calculating expenses incurred to assessing the estimated costs.
This will help draft financial reporting more accurately and in more detail, and avoid improper reflection of the creditor’s financial status in the reporting.
Firstly, the banks will have to recognize not only the credit losses they have already incurred but also expenditure expected in the future. This will help make appropriate loan capitalization.
New IFRS rules will come into force in more than 100 countries, excluding the USA. Japan will decide itself on whether to implement the updated IFRS norms.
In the experts’ opinion, a necessity to improve the rules originated in the time of the financial crisis, when banks could not recognize losses in the reporting until they were actually incurred, notwithstanding the estimated losses, is evident.
An updated standard will come into force on January 1, 2018.
