IFRS 9 and ASC 326 were developed after the 2008–2009 financial crisis, and both accounting standards include an expected loss model as a means of providing for credit losses. As a result of the COVID‐19 worldwide pandemic, however, banks face considerable uncertainty about the potential scale of the bad debts for which they will need to provide. Banks need to reassess their loan assets, by updating their risk models with expectations about potential default rates and future macro‐economic and financial developments. However, we see several interventions worldwide. The European Securities and Markets Authority addresses a position paper on the prudential application of IFRS 9. The Coronavirus Aid, Relief, and Economic Security Act in the US has given banks an optional deferral of implementation of the CECL model until 31 December 2020. This paper addresses the challenges banks face when applying the expected losses model during the current crisis. More importantly, it discusses the impact of supervisor and regulators’ intervention on future financial reporting comparability, transparency and whether there is a level playing field.
This paper makes a number of observations on the International Accounting Standards Board's Discussion Paper DP/2020/2 Business Combinations under Common Control. We address issues associated with the approach for applying acquisition accounting and discuss the practicality of the proposed criteria. We question the ability of this new DP to contribute to either decision usefulness or comparability in the presence of non‐controlling shareholders. We also address issues related to cost–benefit considerations and (unintended) earnings management opportunities, and propose some adjustments to properly reflect economic substance.
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