In July 2014, the International Accounting Standards Board (IASB) issued the final version ofIFRS 9 Financial Instruments (IFRS 9, or the Standard), bringing together the classification andmeasurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. Newimpairment requirements must be adopted with the other IFRS 9 requirements from 1 January2018, with early application permitted.

Credentials

We have developed acomprehensive landscape ofservices in the field of financialassets impairment coveringboth methodological as well aspractical aspects.

Our client base is locatedacross the globe.

Our strengths are absolutefocus on your needs, deepsubject matter expertise andour quick and targetedresponse to challenges relevantto impairment.

Introduction of our services isjust the beginning of what westrive for – a long-lastingrelationship with continuedsupport and high value addedfor you – our client.

Application challengesA successful transition towards IFRS 9 requires an early start and an analysis of thestandard implications. The new impairment requirements give rise to a number ofimplementation challenges:

► New models will need to be developed to incorporate the forward looking concept that isthe basis of the standard. More judgment will have to be exercised by the management.

► The entities will have to accurately capture the occurrence of significant deterioration incredit risk (several operational simplifications will be allowed).

► Measurement of expected credit losses will involve calculation of probability weightedoutcome, correct setting of the time value of money and use of reasonable andsupportable information.

► A general and simplified model will be available for several types of financial instruments.► New extensive disclosures will be required to improve comparability of information

provided by different entities. These disclosures will be very demanding on data necessaryto comply with all requirements.

► New extensive back-testing will be mandated which will require new flexible calculationenvironment.

What you need to know about IFRS 9 in relation to impairment► The new impairment requirements in IFRS 9 are based on an expected credit loss model and

replace the IAS 39 incurred loss model► The expected credit loss model applies to debt instruments recorded at amortized costs or

at fair value through other comprehensive income, lease receivables and most loancommitments and financial guarantee contracts

► Entities are required to recognize either 12-month or lifetime expected credit losses,depending on whether there has been a significant increase in credit risk since initialrecognition

► The measurement of expected credit losses should reflect a probability-weighted outcome,the time value of money and reasonable and supportable information that is availablewithout undue cost or effort

IFRS 9 Financial instruments:Impairment

Where EY helps

Phase IIFRS 9 brings new rules and new perspectives to the methodology of impairmentcalculation and subsequently also to related accounting disclosures. We will help youwith a detailed analysis to identify gaps between the old and the new approach and topropose necessary, but also practicable amendments.

Our analysis will result in the evaluation of the main differences of the currentmethodology of impairment and the new IFRS 9 rules and our diagnostic report willdescribe the details and eventual non-compliances.

Phase IIWithin the phase II, we would go further and actually help you to identify adjustmentsneeded to get the existing methodology of impairment calculation aligned with thenew requirements.

Output of the phase II will be the redesign recommendation report.

Phase IIIDuring the phase III our aim will be to help you with the implementation ofamendments identified during the previous phase. We are ready to support you with:

► The development of models incorporating the new standard requirements

► Our IFRS 9 compliant Loan Impairment Calculator (LIC) proprietary tool

The phase III outputs may differ based on the agreed scope of the work. We canprovide assistance in redesign of internal procedures and related processes. We canalso assist you in the redesign of currently used models to align them with the newconcepts introduced by IFRS 9. Furthermore, we can help you to implement thenecessary modifications to information systems.

Phase IVWe are prepared to help you to periodically challenge the models that you will use forloan impairment provisioning in the light of potential changes in externalenvironment, in products offered and processes and policies of the bank that couldimpact the reliability of the models.

We are also ready to assist or advice you also on the evaluation of the effectivenessand efficiency of the implemented set-up and the related control environment. Wewill support you in IT/IS aspect of the impairment calculation (data quality in line withBCBS 239).

What does your IFRS 9 impairment road map may look like?

Phase I

Analysis ofexisting

impairmentmethodology

Phase II

Proposal ofchanges toimpairment

methodology

Phase III

Implementation ofchanges toimpairment

methodology

Phase IV

Controlenvironmentand ongoing

support

Project Management Office

Data & IT

Phase I&II Phase III

EY | Assurance | Tax | Transactions |Advisory

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Contacts

Zeynep DeldagPartner | FAAS (Financial Services Industry)CIS+7 (495) 755 97 13zeynep.deldag@ru.ey.com

Bruno OppligerPartner | Advisory, Risk, CIS+7 (495) 664 78 79Bruno.Oppliger@ru.ey.com

Maryana KlementievaManager | FAAS (Financial Services Industry)CIS+7 (495) 664 78 52maryana.klementieva@ru.ey.com

Svyatoslav SidnevManager | FAAS (Financial Services Industry)CIS+7 (495) 228 36 86svyatoslav.sidnev@ru.ey.com

Michail TsibulevskyManager | Advisory, Risk-FSRM CIS+7 (495) 648 96 15Michail.Tsibulevsky@ru.ey.com

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