APRA confirms provisioning approach when AASB 9 becomes effective

In a recent letter to all authorised deposit-taking institutions (ADIs), the Australian Prudential Regulation Authority (APRA) confirmed that ADIs will be required to apply AASB 9 Financial Instruments for annual periods beginning on or after 1 January 2018, and this will have a significant impact on the level of provisioning (impairment allowances) against loan balances in their financial statements.

The letter also confirms that for:

• APRA reporting purposes, ADIs will continue to apply the prescribed provisioning approach under Prudential Standard APS 220 Credit Quality, and
• Annual reporting purposes, ADIs may use the prescribed provisioning approach as a basis for determining expected credit losses under AASB 9, but some adjustments may need to be made and sign off would be required by the external auditors.

More information on AASB 9 and impairment (expected credit losses)

BDO has issued various publications and newsletter articles on AASB 9 and expected credit losses. Please refer to these for more information:

• IFRS 9 Financial Instruments - Impairment of Financial Assets (Need to Know)
• IFRS 9 Financial Instruments (IFRS in Practice) – refer section 6
• IFRS 9 topic.

Alternatively, please contact your engagement partner for assistance.