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Countdown to IFRS Doomsday: Hedging your Bets with IFRS 9

by FEI Daily Staff

IFRS 9 Financial Instruments is being introduced to more effectively and transparently evaluate financial risk – and the deadline is swiftly approaching.


Even a decade after the financial crisis of 2008/2009, executives across the globe are continuing to see changes to financial reporting and business processes. As a direct result International Financial Reporting Standards IFRS 15 (revenue recognition) and IFRS 16 (Leases) are top of mind for most CFOs and their teams today.

But the scope of the changes is even larger. In an effort to avoid future pitfalls like the Lehman Brothers collapse, IFRS 9 Financial Instruments is being introduced to more effectively and transparently evaluate financial risk – and the deadline is swiftly approaching.

IFRS 9 considers three aspects when evaluating financial instruments: new classification and measurement principles for financial assets, new impairment models that will accelerate recognition of credit losses, and an improved model of hedge accounting. The new rules apply to any company with financial assets like loans and receivables. A new principles-based classification and measurement process is applied to each financial instrument to determine the accounting treatment under the new IFRS 9 standard.

With an implementation date of January 1, 2018, the time to prepare is running out and organizations need to focus their attention on evaluating current processes for gaps, preparing for the adoption of new business processes, and executing on those plans in order to achieve compliance.


With less than a year left, CFOs are starting to scramble to adhere to the very detailed and strategic level of accounting standards that IFRS 9 requires. Banks specifically are feeling the pressure to comply, as they are most impacted by the new rules. According to Deloitte’s Sixth Global Banking IFRS survey officials remain so apprehensive that over three quarters of program budget set aside for compliance have yet to be spent. Furthermore, 46 percent of respondents believe they do not have enough technical resources to deliver their IFRS 9 project and 12 percent of these do not think that there will be sufficient skills available in the market to cover shortfalls.

CFOs and finance teams should take a step back and asses their business to develop a clear understanding of what technical, accounting, and physical gaps need to be filled. Questions that may need to be answered include:

  1. Does our team have the skills needed to be compliant? If not, do we need to hire new employees to help with the implementation?
  2. Do we have the technology necessary for implementation? If not, do we need to outsource or should we purchase something new?
  3. Do we need to change our accounting policies and/or processes to ensure we are compliant moving forward? Who should be in charge of this?
  4. Should we partner with a third party consultant like Ernst & Young or Deloitte during the transitional period?

The first step in answering these questions is developing a team that includes representatives from governance risk and compliance (GRC), finance, operations, HR, and IT to build a program and roadmap. These teams can focus on hiring new employees, implementing innovative technology solutions, training talent and developing a task force that is solely focused on compliance and internal monitoring of the implementation progress.

By shifting work from the CFO, the IFRS 9 team will help free up time for CFOs to turn their attention towards strategic planning and liaising with senior management. This includes explaining to the board of directors, shareholders, analysts, auditors, and other stakeholders what changes IFRS 9 may make to the company’s financials.


While the primary impact of IFRS 9 is on banks and insurers, non-financial organizations also face major changes, including new classification and measurement principles for financial assets, new impairment models that will accelerate recognition of credit losses and a new model of hedge accounting.

Adhering to these changes will require extensive analytical expertise and continuous updates, making compliance an ongoing resource rather than a one-time implementation. In order to meet best practice standards, many companies are choosing to lean towards modeling software that helps make analyzing data a more affordable option. Best practices on the road to compliance include:

  1. Central data repository: For most companies, the data needed for compliance is housed in separate silos across a number of different systems. The most efficient way to adopt the new standards is to have all information located in once place, providing teams with a single source of truth.
  2. Don’t wait until the last minute: The creation of new IFRS 9 models could create significant operational burdens. Therefore, companies should allow ideally a year or at the very least six months of parallel runs prior to the deadline to ensure a smooth transition. This means companies that haven’t yet begun, could now be in danger of falling short of the deadline.
  3. Cross-department collaboration: IFRS 9 was updated to include recognition and measurement of financial liabilities, thus forcing finance and risk teams to work more closely. Businesses that have the right team and processes in place will find the road to compliance to be more manageable.
Overall, CFOs and their teams are facing the perfect storm of financial compliance with IFRS 15, 16, and 9 on the horizon. The main goal of IFRS 9 is to mitigate financial risk, improve transparency, and ensure the health of financial institutions and corporate finance departments across the globe. To get there, financial executives need an accurate and transparent view of their financial statements. With the right technology, team, motivation, and preparation in place – organizations should be able to more confidently move towards compliance in the year ahead.


Thack Brown is General Manager and Global Head of Line-of-Business Finance at SAP.