Implementation of IFRS 9 in the Danish FSA's Executive Order on Financial Report for Credit Institutions etc. An Analysis of the Danish FSA’s Directions for Impairment of Loans in Danish Creditinstitutions

Karoline Lefevre Svenné Jensen

Student thesis: Master thesis


As the International Financial Reporting Standard for Financial Instruments (IFRS 9) is replacing IAS 39, the Danish Financial Supervisory Authority (FSA) has decided to support the implementation of IFRS 9 through an update of the Executive Order on Financial Reports for Credit Institutions etc. (Executive Order).
The aim of this thesis is to explore and evaluate whether the requirements regarding impairment of loans in credit institutions (as described in Annex 10 to the Executive Order) accommodates for the information needed by the primary users of financial reports for credit institutions comprised by the Order. Furthermore, the thesis discusses whether the current and draft Annex 10 are compatible with the requirements of IAS 39 and IFRS 9 respectively, and whether there is still a need of Annex 10 after the implementation of IFRS 9.
The analysis is based on the normative accounting theory for financial reporting as established by the International Accounting Standard Board’s (IASB) conceptual framework in ED/2015/3 and the principle of IFRS-compatibility as enacted by the Danish FSA in 2005. Moreover, the results of the study is based on a comparative analysis of the current accounting rules regarding impairment of loans as defined in the International Accounting Standard IAS 39 and the Executive Order, as well as IFRS 9 and the draft text for an updated version the Executive Order accordingly. The thesis finds that in both instances the FSA has implemented the general principles for impairment of loans according to IAS 39/IFRS 9 however, the directions in Annex 10 limits the room for management’s judgement when assessing the need for impairment. As a consequence, it cannot be excluded that there may be situations where the outcome regarding recognition and measurement of impairment on loans based on the requirements in IAS 39/IFRS 9 will not be in accordance with the requirements of the current and the draft text of Annex 10. Therefore, the further requirements of Annex 10 cannot be fully IFRS-compatible. The thesis further concludes that the current Annex 10 may accommodate the need of the marketplace for financial information by ensuring sufficient impairment of loans however, the means to achieve this does not fulfill the basic qualitative characteristics according to the IASB framework, and neither does the draft text of Annex 10.
Finally, the thesis conclude that after the implementation of IFRS 9 there is no longer a need for Annex 10 as the shift from an incurred loss model to an expected loss model reduces the risk of too-little-too-late impairments.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2017
Number of pages146