The implications of IFRS 9 – for Equity Analysts

Abstract: The financial crisis of 2008 highlighted problems with the accounting standard IAS 39, with claims of high complexity, introduction of procyclicality in the financial statements and a proposed role of contributing to the financial crisis. The International Accounting Standard Board issued the predecessor, IFRS 9, which became effective on January 1st, 2018. IFRS 9 introduces a forward-looking Expected Credit Loss model, which significantly change the accounting of loss provisions. With the objective to provide high accounting quality, the International Accounting Standard Board and Financial Accounting Standard Board develop accounting standards based on the conceptual framework, consisting of qualitative characteristics. The study addresses the accounting quality of IFRS 9 through the research question; What implications does IFRS 9 have for equity analysts?  In order to capture the implications, a survey is designed, to reach out to accessible equity analysts of European banks. The results show that the Expected Credit Loss model under IFRS 9 implicate difficulties for equity analysts. Three themes of implications are identified, Time aspect, Complexity and Comparison. Although IFRS 9 provides useful information for the respondents, there are tendencies of a trade-off between relevance and faithful representation. The accounting quality of faithful representation is valued low due to high complexity and low comparability, which might be derived from that IFRS 9 is newly implemented. Despite the implications of IFRS 9, respondents find impairments, today, to be low and a non-vital part of the valuation process of the banking industry.