How banks can improve their IFRS 9 related disclosures

04 November 2019

In October 2019, the FRC published a thematic review of disclosures provided by banking and non-banking entities in the first full reporting period following the adoption of IFRS 9 Financial Instruments. The review was a follow up to the FRC’s November 2018 report, which examined the IFRS 9 related disclosures made in interim accounts.

The FRC reviewed the annual accounts of a small sample of entities across a number of industry sectors including banks, other financial institutions, oil and gas and telecommunications. The review considered the comprehensiveness and quality of the disclosures provided by those entities against the requirements of IFRS 9, IFRS 7 Financial Instruments: Disclosures and the judgments and estimates requirements that are set out in IAS 1 Presentation of Financial Statements. The purpose of the review was to identify key areas of improvement as well as to highlight examples of good practice from published annual accounts.

What key improvement areas were identified?

While the FRC was pleased with the progress made by most entities within its sample, it did identify disclosure areas that could be improved upon, particularly with respect to impairment but also for classification and measurement.


The FRC considered the following four impairment-related areas:

  1. Policies and methodology
  2. Staging and credit risk profile
  3. Multiple economic scenarios
  4. Estimation uncertainty

Its findings were generally positive, with several examples of good disclosure identified across all areas. However, a number of improvement areas were also highlighted (many of which related to staging and credit risk profile):

Issue Suggested improvements
Low credit risk exception Entities should clarify if, and to what extent, the low credit risk exception has been relied on.
Significant increases in credit risk (SICR) Where qualitative and quantitative indicators have been used to assess for SICR, entities should ensure that details of these indicators are disclosed
Definition of default Entities should explain the qualitative factors that are considered when determining whether a loan is in default.
Analysis of the movement in Expected Credit Loss (ECL) balances The analysis should show how ECL balances have moved in and out of each stage of the ECL model, eg through disaggregating the movements. In addition, the reasons behind such movements should be provided by way of narrative description.
Disclosure of exposure to credit risk by credit risk rating grades This must be provided for all exposures within scope of the impairment requirements, including issued loan commitments and financial guarantee contracts.
Assumptions underpinning multiple economic scenarios Disclosure of the assumptions underpinning multiple economic scenarios should be presented clearly and on a consistent basis, eg if average growth rates are used for one scenario, they should be used consistently for all.
Estimation uncertainty Ensure that consideration is given to the effect of changes in single variables as well as changes in multiple variables because in some cases a single variable, such as GDP, might cause the greatest effect.

Classification and measurement

Overall, the FRC’s findings were positive, but the following specific improvement areas were highlighted:

Issue Suggested improvement
Classification decisions Entities should explain how the classification criteria for their financial instruments have been met; in particular, the criteria for designating a financial instrument at fair value through profit or loss (FVPL) or electing to classify an equity instrument at fair value through other comprehensive income (FVOCI).
Accounting policies Accounting policies should be clear, concise and relevant, eg if financial liabilities are designated at FVPL, the accounting policy should explain the treatment of gains and losses attributable to own credit risk for such instruments.
Boilerplate language When discussing the classification criteria, such as which business model(s) a bank may have, the description should reflect the particular circumstances of the entity and not simply be a description taken directly from the standard.
Presentation of interest income Interest from loans at FVPL should not be presented within interest income (see March 2018 IFRS IC agenda decision – Agenda Paper 3).

What are the next steps?

The FRC will continue to challenge banks during their routine reviews and it is likely that it will focus on those areas already identified as needing improvement. All entities applying IFRS 9 should familiarise themselves with the contents of this review, taking note of these improvement areas together with the examples of what the FRC considers to represent good practice.

For help and advice on financial instruments related matters please get in touch with your usual BDO contact or Mark Spencer.

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