scholarly journals Recent Regulation in Credit Risk Management: A Statistical Framework

Risks ◽  
2019 ◽  
Vol 7 (2) ◽  
pp. 40
Author(s):  
Logan Ewanchuk ◽  
Christoph Frei
Keyword(s):  
Credit Risk ◽  
Financial Reporting ◽  
Early Recognition ◽  
Stress Test ◽  
The European Union ◽  
Income Volatility ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Statistical Framework ◽  
Default Data

A recently introduced accounting standard, namely the International Financial Reporting Standard 9, requires banks to build provisions based on forward-looking expected loss models. When there is a significant increase in credit risk of a loan, additional provisions must be charged to the income statement. Banks need to set for each loan a threshold defining what such a significant increase in credit risk constitutes. A low threshold allows banks to recognize credit risk early, but leads to income volatility. We introduce a statistical framework to model this trade-off between early recognition of credit risk and avoidance of excessive income volatility. We analyze the resulting optimization problem for different models, relate it to the banking stress test of the European Union, and illustrate it using default data by Standard and Poor’s.

scholarly journals CASE STUDY OF THE ORIGIN AND THE EVOLUTION OF ACCOUNTING SYSTEMS REGARDING TO THE HARMONIZATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) IN JORDAN AND ROMANIA

2021 ◽  
Vol 30 (30 (1)) ◽  
pp. 156-163
Author(s):  
Omar Alhato ◽  
Alexandra Botos
Keyword(s):  
Middle East ◽  
Financial Reporting ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
The European Union ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Accounting Systems ◽  
Financial Reporting Standards ◽  
Middle East Countries

It is valuable to take note that the majority of financial reporting pundits are in agreement that the financial reporting system of a country depends on several factors that include the legal, economic, and cultural background; The development of tasks performed by accounting is persistently inspired by needs of practice. It is clear of that accounting schemes play an essential role in the market economy, particularly in face of globalization of capital markets, where increasing need for comparable, transparent financial statements for the companies. Rather, it is proposed to present information that is used in making reasoned options amongst alternative uses of limited resources in the conduct of business and economic activities. The present paper discusses the possibilities to improve the accounting policies and procedures in Jordan and other Middle East countries in accordance with commitment of the International Financial Reporting Standards (IFRS). Throughout this study we used a qualitative approach, to outline an overview of the history of financial reporting and its evolution from the origin, to the growth and development of accounting systems by studying a considerable amount of bibliographic material, using different textbooks and journals on accounting theories but also public information presented by the accounting organisations and the government of the two analysed countries. Furthermore, the paper reviewed the achievements made in the convergence of International Financial Reporting Standards (IFRS), in the Middle East countries, in Jordanian context and in the European Union, specifically the case of Romania. International financial reporting standard (IFRS) implementation in Jordan has departed through several transitional phases wile in our previous work we noticed that Romania can be considered a benchmark of high degree convergence to IFRS.

scholarly journals Compatibility of the IFRS for Small and Medium-sized Entities and the new EU-Accounting Directive

2015 ◽  
Vol 63 (6) ◽  
pp. 1945-1951 ◽  
Author(s):  
Gerrit Kaufhold
Keyword(s):  
European Union ◽  
Financial Reporting ◽  
Accounting Standards ◽  
International Accounting Standards ◽  
The European Union ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Member States ◽  
Financial Reporting Standards ◽  
Accounting Principles

The new EU-Accounting Directive of 26 June 2013 (DIRECTIVE 2013/34/EU) has the intention to harmonize the accounting and financial reporting of enterprises in the European Union. “Think small first” is the central principle in the new EU-Accounting Directive and the new regulations have to be adopted in the laws of European member states by 20 July 2015. The International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) was published in 2009 by the International Accounting Standards Board (IASB). The IASB intended to create simplified international financial reporting standards for the special needs of smaller and medium-sized enterprise. The IASB completed in May 2015 a comprehensive review of the IFRS for SMEs and made amendments to the Standard. The revised version of the IFRS for SMEs will be issued in the last quarter of 2015. The aim of the paper is to analyze the compatibility of the IFRS for SMEs and the new EU- Accounting Directive and the problems in connection with the harmonization of the European accounting legislation especially in Germany. Based on the results of the research most of the former incompatibilities could be removed, but the remaining complexity of the IFRS for SMEs and the lack of an option for the member states to adopt the IFRS for SMEs as an accounting and reporting standard besides or instead their local accounting principles will prevent the wide use of the IFRS for SMEs in Germany and in other member states of the European Union.

scholarly journals Methods of Calculation of Expected Credit Losses Under Requirements of IFRS 9

2019 ◽  
Vol 13 (4) ◽  
pp. 74-86
Author(s):  
Alfiya Vasilyeva ◽  
Elvina Frolova
Keyword(s):  
Credit Risk ◽  
Financial Reporting ◽  
Time Lag ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Macroeconomic Factors ◽  
Credit Risks ◽  
Ifrs 9 ◽  
The Impact ◽  
Credit Losses

The most important area of work for financial market regulators including International Accounting Standards Board is to clarify the metrics of credit assessment. This problem became particularly relevant after the financial crisis of 2008, when the insolvency of approaches to the assessment of credit risks adopted under the then international financial reporting standard IFRS (IAS) 39 became apparent, since credit losses on financial instruments were taken into account by the “loss model”, and therefore, the asset was recognized as financially impaired due to the fact of credit quality deterioration and significant time lag. From 1 January 2018 of a new international financial reporting standard IFRS9 IFRS 9 is based on a different approach — the principle of “expected credit losses” (ECL). The transition to IFRS 9 is intended to strengthen the banking system by increasing reserves , the banking system’s stability can be increased also. The new business model radically changes the approach to the formation of reserves, including by taking into account the impact of macroeconomic indicators on their value. According to various estimates, the scale of increase in reserves ranges from 30% to 50%. The purpose of this article is to systematize the methodological principles and approaches that underlie the requirements of IFRS 9 (basic and simplified and POCI approaches), as well as a comparison of the main methods for assessing the probability of default and expected credit losses (Weibul distribution, migration matrix, generator matrix ) In the framework of this article, the authors formulated criteria for the transfer of assets between the stages of credit risk (stage), and also formulated the principles for calculating expected credit risks for each stage, taking into account macroeconomic factors. This article is of practical value, as it can be the basis for the development of methods for calculating the expected credit risks of corporate clients of commercial banks, and can also be used to improve credit risk management models.

scholarly journals Approaches to Building Default Probability Models for Financial Instruments of Project Financing at Long Time Horizons

2021 ◽  
Vol 15 (4) ◽  
pp. 66-87
Author(s):  
Alfia Vasilieva
Keyword(s):  
Credit Risk ◽  
Financial Reporting ◽  
Commercial Banks ◽  
Financial Instruments ◽  
Project Financing ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Time Horizons ◽  
Ifrs 9

  Project financing is one of the priority tools for stimulating the country's economic growth around the world, which allows the implementation of large-scale and capital-intensive projects, providing favorable credit conditions with insufficient creditworthiness of the project beneficiaries [1]. As a rule, project financing instruments are long-term (10-30 years, depending on the type of transaction), so this asset class is interesting for the implementation of the task of building long-term models for assessing credit risk associated with the introduction in 2018 of the new international financial reporting standard IFRS 9 "Financial Instruments". The new standard requires financial institutions to calculate their expected credit loss (ECL) at the time of granting loans and other banking products exposed to credit risk [2], taking into account different time horizons, which significantly changes the traditional approaches to assessing credit risk by commercial banks [3], [4]. As part of this work, a model was built to assess the long-term probability of default for the portfolio of assets of a Russian commercial bank belonging to the project finance segment in accordance with the requirements of the International Financial Reporting standard IFRS 9 "Financial Instruments". At present, the topic of this work is extremely relevant and may be of interest both for commercial banks that are faced with the problem of improving credit risk assessment models  

scholarly journals Are companies in the Czech Republic ready to implement IFRS for SMEs?

2012 ◽  
Vol 60 (7) ◽  
pp. 39-44 ◽  
Author(s):  
Lucie Bartůňková
Keyword(s):  
European Union ◽  
Czech Republic ◽  
Financial Reporting ◽  
International Accounting Standards ◽  
The European Union ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
The Czech Republic ◽  
Financial Reporting Standards ◽  
Advantages And Disadvantages

The process of integration and globalization is closely related to the need for harmonization of accounting at international level. In this connection International Financial Reporting Standards (IFRS) have been developed, which are primarily designed for companies whose securities are traded on regulated markets of the European Union. However, as the importance of small and medium-sized entities has been recently on the increase, the International Accounting Standards Board (IASB) also issued after five years of effort in July 2009 the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). At present, there is no legislation for the application of this standard in the Czech Republic or any other state of the European Union. Each jurisdiction must determine whether to adopt IFRS for SMEs, to what extent and for which entities the standard is mandatory and for which it is not. Already in previous years the European Commission analyzed data from surveys on this new standard and discussed its advantages and disadvantages. To date, however, it has not taken a single decision on whether to adopt and incorporate the standard into the European accounting legislation. The question also remains what attitude towards IFRS for SMEs companies operating in the Czech Republic will take. That is why this paper analyzes the opinions of some Czech companies belonging to the group of SMEs on the potential adoption of this standard.

scholarly journals Adapting the Default Weighted Survival Analysis Modelling Approach to Model IFRS 9 LGD

Risks ◽  
2021 ◽  
Vol 9 (6) ◽  
pp. 103
Author(s):  
Morne Joubert ◽  
Tanja Verster ◽  
Helgard Raubenheimer ◽  
Willem D. Schutte
Keyword(s):  
Survival Analysis ◽  
Financial Reporting ◽  
Proportional Hazards ◽  
Proportional Hazards Model ◽  
Survival Curve ◽  
Cox Proportional Hazards ◽  
Cox Proportional Hazards Model ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Ifrs 9

Survival analysis is one of the techniques that could be used to predict loss given default (LGD) for regulatory capital (Basel) purposes. When using survival analysis to model LGD, a proposed methodology is the default weighted survival analysis (DWSA) method. This paper is aimed at adapting the DWSA method (used to model Basel LGD) to estimate the LGD for International Financial Reporting Standard (IFRS) 9 impairment requirements. The DWSA methodology allows for over recoveries, default weighting and negative cashflows. For IFRS 9, this methodology should be adapted, as the estimated LGD is a function of in the expected credit losses (ECL). Our proposed IFRS 9 LGD methodology makes use of survival analysis to estimate the LGD. The Cox proportional hazards model allows for a baseline survival curve to be adjusted to produce survival curves for different segments of the portfolio. The forward-looking LGD values are adjusted for different macro-economic scenarios and the ECL is calculated for each scenario. These ECL values are probability weighted to produce a final ECL estimate. We illustrate our proposed IFRS 9 LGD methodology and ECL estimation on a dataset from a retail portfolio of a South African bank.

scholarly journals Lobbying na Regulação Contábil: Evidências do Setor Petrolífero

2014 ◽  
Vol 25 (65) ◽  
pp. 124-144 ◽  
Author(s):  
Odilanei Morais dos Santos ◽  
Ariovaldo dos Santos
Keyword(s):  
Financial Reporting ◽  
Accounting Standards ◽  
Status Quo ◽  
International Accounting ◽  
International Accounting Standards ◽  
Discussion Paper ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
International Accounting Standards Board

Este trabalho tem como objetivo identificar os fatores determinantes à submissão de cartas comentários, como estratégia de lobbying no contexto da regulação contábil, à audiência pública do Discussion Paper Extractive Activities do International Accounting Standards Board IASB).Os resultados mostram o tamanho como fator determinante, em todas as modelagens utilizadas, indicando que grandes empresas petrolíferas possuem maior probabilidade para realizar lobbying. Essa propensão é verificada para posicionamentos essencialmente desfavoráveis às propostas apresentadas pelo IASB, o que implica em considerar que a revisão/substituição do International Financial Reporting Standard -IFRS6 será um processo complexo e sujeito a pressões por parte das empresas petrolíferas para manter o status quo.

Accounting Standards and Earnings Quality — Evidence from Registered ADRs

2018 ◽  
Vol 21 (04) ◽  
pp. 1850022
Author(s):  
Yaseen S. Alhaj-Yaseen ◽  
Kean Wu ◽  
Leslie B. Fletcher
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Accounting Standards ◽  
Securities And Exchange Commission ◽  
High Quality ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
The Us ◽  
Us Gaap

This paper examines the changes in earnings quality of registered American Depositary Receipts (ADRs) as a result of switching accounting standards. We aim to shed light on the potential impact of International Financial Reporting Standard (IFRS) adoption on US firms. A suboptimal approach to achieve this goal is through examination of US firms’ surrogates such as ADRs. Unlike previous studies, we made a distinction between registered and unregistered ADRs and affirmed that registered ADRs are the closest surrogates with which to conduct our analysis because they are exclusively required to adhere to the Securities and Exchange Commission (SEC)’s stringent disclosure requirements. When cross-listing their equity on the US exchanges, foreign issuers can file their financial reports with the SEC using IFRS, US GAAP (generally accepted accounting principles), or their domestic GAAP with reconciliation to US GAAP. An improvement in earnings quality is documented when ADRs adopt US GAAP or IFRS versus domestic GAAP. However, when the comparison is made between US GAAP and IFRS, no difference in earnings quality is documented. These results indicate that switching to high-quality accounting standards is likely to improve earnings quality. This improvement is maximized when the difference between reporting standards is high and minimized if otherwise. Our conclusion is that the adoption of IFRS in the US is unlikely to change earnings quality of local issuers. Moreover, we drew a distinction between reconciliation with and adoption of high-quality accountings standards and find that while the former can enhance earnings quality, the latter can further improve it.

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