Katherine Cancro is a member of the Technical Accounting Group at Barclays Bank PLC in London, where the implementation project for IFRS 9 Classification and Measurement is one of her key responsibilities. Before joining Barclays Katherine was a staff member at the International Accounting Standards Board, helping develop IFRS 9. Ahead of CFP’s IFRS 9 Forum that brings together senior accounting and risk professionals to discuss each phase of the replacement of IAS 39 with IFRS 9, CFP spoke to Katherine about the classification and measurement approach under IFRS 9
Katherine, can you tell CFP’s readers a bit about yourself and your professional background?
“I’m a member of the Technical Accounting Group at Barclays Bank PLC in London, where the implementation project for IFRS 9 Classification and Measurement is one of my key responsibilities. Before joining Barclays, I was a staff member at the International Accounting Standards Board, helping develop IFRS 9. I work with banking products across different Barclays businesses, including collateralised loan and mortgage securitisation, structured notes, private equity, commodities, and credit cards, and also supports group financial reporting processes. I am a Certified Public Accountant in the State of Illinois (USA) and a CFA Level III Candidate.”
You will be discussing the classification and measurement approach at CFP’s IFRS 9 event, can you please give a brief overview of the classification and measurement approach under IFRS 9?
“IFRS 9 requires financial assets to be classified on the basis of the business model within which they are managed, and their contractual cash flow characteristics.
A financial asset is measured at amortised cost if both:
– It is held within a business model whose objective is to hold financial assets to collect contractual cash flows, and
– The contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A financial asset is measured at fair value through other comprehensive income if both:
– It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and
– The contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Any financial assets not meeting the above criteria will be measured at fair value through profit or loss. In addition, despite the requirements above, the fair value option will be available for accounting mismatches—in other words, at initial recognition of a financial asset, an entity may irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.
For additional detail, there are a number of publicly-available summaries published by the IASB and accounting firms, or a member of the bank’s accounting policy team could be consulted.”
What are the key areas that are proving challenging with the implementation of the standard?
“I’ll make a few personal observations here, which likely are not a complete picture and do not necessarily represent the views of my organisation. I think the exact challenges faced by each bank will probably be different, but there are also likely to be some common themes. The classification and measurement requirements of IFRS 9 require an assessment of the business model(s) within which financial assets are managed. Gaining an adequate understanding of the business model(s) may require consultation with stakeholders that do not normally get so involved in financial reporting, for example the businesses themselves. In addition, the contractual cash flow characteristics of financial assets must be assessed, which may be facilitated by a detailed contract review in some cases. Furthermore, the impact of IFRS 9 classification and measurement is not limited to the project itself – there may be knock-on impacts to impairment and hedge accounting programmes, financial and regulatory reporting, tax, and management reporting, to name a few.”
How can organisations better prepare for the transition of policies and processes to ensure compliance under IFRS 9 and towards parallel runs?
“There is no ‘one size fits all’ approach for running the IFRS 9 implementation project. However in my experience there are some key steps that can be taken to help smooth the path to transition, for example engaging early with a broad range of stakeholders at an appropriate level of seniority, agreeing key governance principles, and developing and holding people to realistic timelines throughout the project. I’ll discuss my observations in greater detail during the conference.”
