Tag: IFRS-9

KARACHI: State Bank of Pakistan (SBP) on Tuesday announced timeline for implementing International Financial Reporting Standards 9 (IFRS 9). The central bank said that it has been decided to implement the IFRS 9 from January 01, 2022.

The SBP said that through Circular No. 04 dated October 23, 2019 wherein the effective date of IFRS 9 implementation and its transition requirements were advised.

However, keeping in view of COVID-19 impact and banking industry representations, it has been decided to implement the IFRS 9 from January 01, 2022 instead of its earlier implementation date of January 01, 2021.

Meanwhile, the banks/DFIs/MFBs (hereinafter referred as Financial Institutions) are required to perform the following tasks:

#	Particulars	Timeline
1	Submission of IFRS 9 compatible pro forma Financial Statements for  year-ending 2020 and 2021 (as per the requirements given in para 2(a) and Annex-I of BPRD Circular No. 04 dated October 23, 2019)	Jul 15, 2021 Mar 31, 2022
2	Parallel Run Implementation of IFRS 9   Submission of Parallel Run Results for period ending Mar 31, 2021   Submission of Parallel Run Results for period ending Jun 30, 2021   Submission of Parallel Run Results for period ending Sep 30, 2021	Jul 30, 2021 Aug 31, 2021 Oct 31, 2021

The central bank said that it is aware of the fact that IFRS 9 implementation involves considerable judgment on part of the Financial Institutions (FIs) particularly on the Expected Credit Loss (ECL) Methodology.

In this regard, the SBP, in line with best international practices, has developed “IFRS 9 application instructions” for ensuring smooth, robust and consistent implementation of IFRS 9 in the banking industry.

The aim of these instructions is to achieve standardized practices with respect to the expected credit loss accounting and to draw out the SBP’s expectations from the FIs, where they are expected to exercise considerable judgment and/or elect to use simplifications and other practical expedients permitted under the Standard. Notwithstanding, the FIs are advised to develop their own Credit Conversion Factor and Loss Given Default models till Dec 31, 2021.

The instructions enclosed herewith will be used by the FIs for their parallel reporting purposes only and these shall not be considered as final instructions, which will be issued by SBP subsequently based on the parallel run results.

Further, for ECL to be recognized in 2022, SBP will provide timeline by Dec 2021 for absorption of ECL, for CAR purposes, after evaluation / assessment of individual FIs.

During the parallel reporting period, FIs non-compliance will not attract punitive action; however, any non-compliance of specific provisions of these instructions will be disclosed by the FI in its pro forma financial statements and parallel run results along with reasons thereof.

KARACHI: State Bank of Pakistan (SBP) on Wednesday directed banks to implement International Financial Reporting Standard on Financial Instruments i.e. IFRS 9 from January 01, 2021.

The International Accounting Standards Board (IASB) issued International Financial Reporting Standard on Financial Instruments i.e. IFRS 9 effective from January 1, 2018.

IFRS 9 has introduced an expected credit loss approach, which bring major changes in the way the financial institutions (FIs) will assess the impairments of financial instruments.

The banking industry has been representing to the State Bank of Pakistan(SBP) about the difficulties being faced in the implementation of this Standard and has been requesting to defer its implementation till December 31, 2020.

Keeping in view of the importance of the Standard, the SBP advised the banking industry to carry out a quantitative impact assessment of IFRS 9 on their financials along with the assessment of their readiness of its implementation.

In view of the impact assessment and stakeholders’ representation, it has been decided that the effective date of IFRS 9 implementation is January 1, 2021 for banks/DFIs/MFBs.

Meanwhile, they are advised to ensure meticulous compliance of the following instructions:

(a) Prepare separate pro forma Statement of Financial Position, Profit and Loss Account, Statement of Comprehensive Income and Statement of Changes in Equity based on the requirements of IFRS 9 along with the detailed notes on Advances, Investments, Provisions, Write offs and any other notes which may have material impact. The FIs are required to prepare aforesaid financials for the year-end 2019 and submit the same to BPRD-SBP within the time mentioned in the below table. These financial statements should also comply with the requirements stated in the Annexure-I of the Circular.

(b) Perform parallel run of IFRS 9 implementation starting from Jan 1, 2020 to test the IFRS 9 outcomes. The FIs shall submit quarterly reports on the status of IFRS 9 implementation to the SBP, after review by the Board Committee responsible for oversight of the IFRS 9 implementation. Such reports should be submitted to the SBP within 14 working days of the Board of Directors (BOD) meeting at which the financial statements are approved.

(c) Review internal systems and procedures and put in place required governance structures, processes and systems for implementation of the Standard before the effective date of IFRS 9 implementation.

(d) The BOD of FIs are required to play an active role in the oversight of the implementation process of IFRS 9 either by establishing a separate subcommittee for this purpose or assigning the same to an existing subcommittee. The BOD are required to discuss the progress of IFRS 9 implementation in their periodic meetings. The specific responsibilities of the BOD for the implementation of IFRS 9 are mentioned in Annexure-II of the Circular.

(e) Form a management level IFRS 9 Project Steering Committee, which will be responsible for managing the implementation process of IFRS 9, as mentioned in Annexure-II of the Circular. The Project Steering Committee should at least include the members from the Risk Management, Finance and IT departments.

(f) The process of implementing IFRS 9 is required to be completed within the following time period:

Sr#	Particulars	Timeline
1.	Forming of a Board Committee and a Project Steering Committee	Jan 31, 2020
2.	Preparation of IFRS 9 compatible pro forma Financial Statements for year-ended 2019	Apr 30, 2020
3.	Parallel Run of IFRS 9	Periods beginning Jan 1, 2020
4.	Directors Review Reports for Parallel Run Periods	Within 14 working days from BOD meeting
5.	Effective Date of IFRS 9 implementation	Jan 1, 2021

All banks/DFIs/MFBs are advised to ensure that the transition to IFRS 9 will be achieved in a planned manner and within the timeline stipulated above. Any violation of these instructions may attract punitive actions under the relevant provisions of the Banking Companies Ordinance 1962.