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Article:

GPPC 2nd IFRS 9 Paper: Auditing expected credit losses

15 Φεβρουαρίου 2021

The adoption of IFRS 9, the new international financial reporting standard for financial instruments, will bring significant challenges, in particular to the banking sector and also to the audit profession.  The new expected credit loss impairment model is proving to be particularly challenging for banks and other lenders to implement, and this is an area that is subject to intense scrutiny by prudential regulators, securities regulators and audit regulators, all of which will expect to see high quality implementation of the new model.

The Global Public Policy Committee (“GPPC”), the global forum of representatives of the six largest international accountancy networks that comprises BDO, Deloitte, EY, Grant Thornton, KPMG and PwC has released a second paper on IFRS 9.  The aim of ‘The Auditor’s Response to the Risks of Material Misstatement Posed by Estimates of Expected Credit Losses under IFRS 9 - Considerations for the Audit Committees of Systemically Important Banks’ is to promote high quality audits of the accounting of expected credit losses.

While the paper is primarily aimed at the audit committees and those charged with governance at Systemically Important Banks (“SIBs”), parts thereof, to varying degrees, are relevant to other banks and lenders, with this being based on the composition of their loan book. 

The paper is addressed to the audit committees of SIBs and starts with an introductory letter to the Chair of the Audit Committee.  It then sets out considerations for those charged with governance across accounting policies, controls, information systems, data, models, judgements and disclosures so to assist them in their assessment of the work performed by their auditors in relation to expected credit losses.  It also includes a summary of questions that they might wish to discuss with their auditors.

The paper provides banks and other lenders with valuable insight on the type of procedures that auditors should be performing so they can obtain sufficient appropriate audit evidence that expected credit losses, which have been estimated by management, are not materially misstated. The full paper is available to download below.

If you have any questions, or would like to discuss the content of the paper further, please get in touch with Mark Spencer.