The International Organization of Securities Commissions (IOSCO) is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation. The organisation’s membership regulates more than 95% of the world’s securities markets and is responsible for the oversight of capital markets and the application and enforcement of accounting standards. In light of current uncertainty resulting from the COVID-19 outbreak, we remain fully committed to the development, consistent application and enforcement of high-quality accounting standards which are of critical importance to the proper functioning of the capital markets—especially in times of uncertainty.
IOSCO objectives include protecting investors, maintaining fair, efficient and transparent markets and seeking to address systemic risks. The application of accounting standards must result in issuers providing clear, reliable, transparent and useful information to allow investors to make informed investment decisions.
The responsibility for developing and maintaining high quality standards resides with the International Accounting Standards Board (IASB), and we welcome their recent educational materials that address the application of accounting for expected credit losses (ECL) in accordance with IFRS 9 Financial Instruments during the period of economic uncertainty arising from the COVID-19 outbreak. IOSCO notes that the related IASB release and educational materials do not change, remove nor add to the requirements in IFRS 9.
High quality financial reporting requires the application of professional judgment to an issuer’s particular circumstances. Proper application of professional judgment requires appropriate skills, experience and internal controls. In particular, IFRS 9 does not set bright lines and should not be applied in a mechanistic manner. IFRS 9 provides a principles-based framework for applying professional judgment in evaluating forward-looking scenarios when estimating expected credit losses related to financial instruments measured at amortised costs or fair value through Other Comprehensive Income.
In response to the COVID-19 pandemic, a number of governments, authorities and regulators across the globe have adopted relief programmes aimed at financial institutions, businesses and households resulting in increased liquidity, debt payment holidays, moratoriums on repayment of loans and mortgages, loan guarantees and other support measures. Issuers will need to consider, as well, the positive impacts of such measures in the credit risk over the expected life of the instruments and use forward-looking information such as long-term economic forecasts supported by the best available information.
Issuers should evaluate the implications of these government-backed relief programs and economic forecasts when assessing whether there is a significant increase in credit risk (SICR). These circumstances may have a temporary impact on borrower´s liquidity or more significantly on the credit risk over the expected life of the financial instrument and thus affect the SICR’s assessment and the measurement of the expected credit losses.
The related financial instruments principles-based disclosure requirements in IFRS Standards (i.e. IFRS 7, IAS 1) should result in disclosure that considers the impact of these important emerging issues.
Issuers should include robust disclosures of material information that can provide much needed transparency to users of financial statements. Such disclosure considerations should include how issuers have taken into account the various issues discussed above in determining their ECL approach.
These considerations are relevant for a wide range of issuers that extend credit and are subject to IFRS 9 impairment requirements, encompassing banks, non-bank financial institutions and other entities that have provided loans and/or credit. IOSCO supports the IASB and the IFRS 9 education materials.
We also support a coordinated approach to the oversight of global markets, particularly in light of the COVID-19 outbreak. Accordingly, we have been closely engaged with the IASB and other regulators regarding the application of IFRS 9 in this context and we welcome the media releases and educational materials of these institutions as well as the expressions of support for the consistent and robust application of IFRS 9. Finally, we confirm our support for coordinated implementation of the standards produced by independent standards setters and for the cooperative enforcement of those standards.