AASB 9 AND AASB 139

AASB 9 and AASB 139

AASB 9 and AASB 139

Introduction

The global financial crisis (GFC) has highlighted the interaction between the financial institution and accounting regulatory requirements in relation to loan loss provisioning. In relation to the accounting perspective, the term provisions refer to reductions in passing on the amount of a loan, or group of loans, on the basis of evidence of damage. However, across jurisdictions also exist between the standards (Bolt-Lee and Smith, 2009), the present accounting model that follow is IAS 39 Financial Instruments: Recognition and Measurement (a measure of instrument set by the International Accounting Standards Board (IASB), which is based on the idea of received loss. The contribution of provisioning to the procyclicality of capital depends on the measurement and timing of provisions relative to the economic cycle. The IASB has issued an exposure draft International Financial Reporting Standard (IFRS) 9 Financial Instruments: Amortised Cost and Impairment in which there is a movement towards the use of an expected loss model of provisioning. This paper examines the conceptual issues underlying the debate on provisioning and procyclicality and assesses possible financial statement impacts. It suggests that the introduction of IFRS 9 may result in some perverse consequences due to the level of subjectivity and modelling complexity involved in assessing the level of expected future credit losses (DeFelice, 2010).

IAS 39 or AASB 139

IAS 39 or AASB 139 introduces the definition of financial instruments such as active or passive financial transaction (trading), financial assets held to maturity (held to maturity investments), loans and receivables created by the company, financial assets held for sale (or investment available for sale), and hedged instrument cover, derivative, derivative attached (Shough, 2011). In addition, the definitions corresponding to treatments or approaches accounting (discussed below) provides such as amortized cost method of effective interest rate, credible coverage (or correlation). IAS 39 applies to all entities to all financial instruments, excluding the following:

Investments in subsidiaries, entities subject to notable influence (or entities satellites) and joint ventures;

The rights and obligations under the lease. This applies: to the claim of the lesser of the lessee under a lease financing or leasing; debt of the lessee to the lesser under a lease acquisition; derivatives that embedded in leases;

Employers' obligations under employee future benefits to favor employees and related assets of the plans;

Insurance policies held by policyholders. This applies to derivatives that embedded in insurance contracts held by the holders' policies;

Equity instruments issued by the entity, including options, warrants and other financial instruments that classify as equity of the entity. The holder of these instruments, however, requires applying provisions of these instruments, unless they exclude from the application;

The obligations under stock-based compensation for the benefit of employees and other stock-based payments for the benefit of self-employed, except contracts covered by this chapter;

Contracts that require a payment based solely on variable climatic, geological or other physical variables that are not traded or held for trading;

Loan commitments that cannot be cash or through another financial instrument on a ...