Komparativ analyse af nedskrivningsmodellerne for udlån i IAS 39, i ED/2009/12, i EBF’s model og i tillægget til ED/2009/12

Bjørn Philip Rosendal

Student thesis: Master thesis

Abstract

The existing impairment model ved brug af IAS 39 is being highly criticised for their adverse impact on market conditions, for which reason many acknowledged organisations are putting pressure on the IASB to change the model from an incurred loss model to an expected loss model. The key point of criticism of IAS 39 has been that it is considered to aggravate market fluctuations and hence to add to economic instability. G20 and the Financial Stability Board (FSB), to mention two, required that the new impairment model will enhance economic stability. The foundation for preparing new standards is laid down in the IASB's conceptual framework. A new impairment model therefore needs to fulfil the requirements of both G20 and FSB for financial stability and to maximise the useful value stipulated under the conceptual framework. Financial stability is determined using three different definitions of financial stability whereas the assessment related to the conceptual framework is made using the relevant qualitative characteristics laid down therein. This thesis uses a case to illustrate the effect of the impairment models. The first part of the analysis is an assessment of IAS 39 with respect to financial stability and the conceptual framework. Based on this analysis, I believe that the impairment model in IAS 39 has affected financial stability adversely and not maximised its useful value stipulated under the conceptual framework. Then the IASB’s proposal for a new impairment model is analysed. My findings are that the proposed new impairment model does not have an adverse impact on financial stability; its impact is rather neither negative nor positive. Also, the impairment model is estimated to maximise the useful value stipulated under the conceptual framework. As special element of the IASB’s proposal for a new impairment model is that initially expected losses are included by way of a reduction of net interest income distributed over the terms of the loans. This will, in my view, lead to an up-to-date presentation of the risk associated with the loan portfolio. After the IASB had issued its proposal for a new impairment model, the European Banking Federation, and the IASB and the Financial Accounting Standards Board (FASB) in concert, have drafted their proposals for a new impairment model. The analysis of the EBF’s impairment model leads to the conclusion that, using the assumptions given in the case, it does not to a great extent affect financial stability adversely and at the same time it maximizes the useful value stipulated under the conceptual framework. The IASB’s and the FASB’s joint proposal for an impairment model is not estimated to ensure financial stability to the same extent and maximise the useful value stipulated under the conceptual framework as the impairment models proposed by the IASB and the EBF. The primary reason is that the impairment model has been designed as a compromise between the IASB’s and the FASB’s own proposals for an impairment model, for which reason it uses two different impairment concepts. The consequence is volatility with respect to financial stability and a reduced useful value stipulated under the conceptual framework. Using the analysis of the four models mentioned above as a basis, I have made a comparative analysis of them to identify the impairment model that overall best fulfils the requirements of G20 and the FSB for financial stability and the useful value stipulated under the conceptual framework. My findings are that the impairment model ved brug af IAS 39 is the model ensuring financial stability the least and maximising the useful value according the conceptual framework the least. The IASB’s proposal for a new impairment model, however, is the model with the second highest degree of ensuring financial stability and the highest degree of maximising the useful value stipulated under the conceptual framework, for which reason this model is regarded as the preferable one, on an overall basis. Generally, none of the three expected loss models reduce cyclical fluctuations. Yet I do believe that a model reducing cyclical fluctuations would not be able to maximise the useful value stipulated under the conceptual framework as it would include write-downs for bad and doubtful debts based on growth in gross domestic product and not based on the substance of events. The analysis has been made based on the aspect that the impairment models should fulfil the requirements of G20 and the FSB for financial stability and maximise the useful value stipulated under the conceptual framework. I believe that there is therefore a risk that the impairment model will be a compromise between the two requirements set in this respect. I do also believe, however, that if the impairment model affects financial stability adversely, this would lead to a reduction in the useful value stipulated under the conceptual framework because the usefulness of financial reporting is reduced in a volatile market. In conclusion, I therefore hold the view that the impairment model should affect financial stability neither positively nor negatively, but its focal point should be to maximise the useful value stipulated under the conceptual framework. Consequently, the impairment model proposed in ED/2009/12 is preferable.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2011
Number of pages95