Written answers

Tuesday, 6 November 2018

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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197. To ask the Minister for Finance the date on which the Central Bank's attention was drawn to the fact that the accounting standard IAS39 was flawed in that it allowed banks to delay the recognition of losses on troubled loans; and if he will make a statement on the matter. [45320/18]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Regulation (EC) No. 1606/2002 of the European Parliament (the Regulation) requires all listed European companies to prepare their consolidated financial accounts in accordance with EU adopted International Financial Reporting Standards (IFRS) - formerly known as International Accounting Standards (IAS) - for accounting periods commencing on or after 1 January 2005.

IAS 39 (adopted for use in the EU) requires loans to be measured at amortised cost using the effective interest method. It also requires the use of an incurred loss approach for the calculation of impairment provisions on loans resulting in impairment provisions being recognised only when losses are incurred and not before then. Under the incurred loss approach an entity assesses at the end of each reporting period whether there is objective evidence that a loan or group of loans is impaired. IAS 39 states that a loan is impaired and impairment losses are incurred if there is “objective evidence” of impairment as a result of one or more events that occurred after the exposure was created (“the loss event”) and that the loss event has an impact on the estimated future cash flows of the loans and these cash flows can be reliably estimated.

In April 2009 the G20 leaders called on "the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards". In this regard the International Accounting Standards Board (IASB) issued a new accounting standard for Financial Instruments, IFRS 9, which replaces IAS 39. IFRS 9 is applicable for accounting periods starting on or after 1 January 2018. IFRS 9 introduces a new regime for impairment provisioning and imposes an Expected Credit Loss approach to provisioning as opposed to the incurred loss approach that is required by IAS 39.

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