Accounting Standards and Accounting Essay

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Financial Times has reported recently that the accounting methods that are maintained by the International Accounting Standards Board are being updated and it appears that many of the banks around the world could be ill prepared to implement the changes that will be required. The accounting standards that are being introduced are geared towards accounting for bad debts due to default loans and other uncollectable accounts and these measures have been dubbed IFRS 9 by those that are affiliated with these matters (Arnold, 2017). The coming changes illustrates many of the issues related to international accounting that are relevant to global economy today.

One of the more fundamental issues at hand is that accounting for bad loans has implications for the entire range of banking operations. For example, banks are required to budget their assets and liabilities in various structures based on regulatory requirements. A bank most hold some ratio of their capital as reserves, and then can producing financing options for their customers based on these requirements. However, any change to the accounting for bad debts has the potential to change the core capital ratios that the financial sectors uses in their operations. It is likely that many banks who are close to their threshold limits may be required to make structural changes in order to meet the new international accounting and reserve requirements that will come into effect after the IFRS 9 implementation.

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There is also a human dimension that is illustrated by the upcoming changes. The Financial Times reports, based on a study conducted by Moody's, that fewer than one in eight banks expect a change in the way they account for bad loans to wipe more than 0.5%age points off their core capital ratios when they are introduced next year, according to the research (Arnold, 2017). Because of the perceived lack of major significance of the accounting changes, it also appears that this has somehow influenced the preparations for the changes. For example, banks appear to be slow in preparing for the change, according to Moody's, which found that 8 per cent of banks had not started work on impact assessment or implementation by the end of last year, even though the change was only a year away; and only about 40 per cent of banks had started implementing the changes by December (Arnold, 2017).

Beyond all of the trouble in implementing official changes….....

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