Study highlights significant variations in HKFRS 9 reporting practices
Fri 28 Feb 2020
One year on since the HKFRS 9 standard on financial instruments came into force in Hong Kong and two years since the First Time Application (FTA), trends and insights into impacts of the standard are beginning to evolve.
As a reminder, the standard introduced numerous
changes with regard to the classification, impairment recognition and the
performance of hedge accounting. As such, financial disclosures have been
significantly amended both for first time adoption and for ongoing reporting.
In order to assess the impact of changes
introduced under the new standard, Mazars conducted a benchmark study (Hong Kong Banks’ HKFRS 9 Benchmark Study) which
also gave an opportunity to assess the quality of disclosures and to better
understand the risk management practice of banks incorporated in Hong Kong.
Initial findings suggest there are significant variations in reporting
practices among banks.
According to the study, out of the 22 banks
analysed, 15 banks reported a negative change in value of total financial
assets on first time application. In terms of credit exposure, banks reported a
high quality of financial assets as of December 2018, 96% of the exposures
being classified as “stage 1” impairment.
However, while some financial disclosures are
very comprehensive, others did not fully address financial disclosure
requirements. Notably, several banks are silent in reporting the use of
rebuttable “30 days past due” presumption, the application of “low credit risk
simplified approach,” or the number of scenarios applied for the
In addition, a wide diversity in the definition
of “default” and its relationship with the stage 3 impairment classification
was noted. Only 12 banks mentioned the linkage between the HKMA loan
classification system and the different stages of impairment under HKFRS 9.
With regard to hedge accounting, macro-hedging
has been excluded from HKFRS 9 and will be subject to a separate standard.
Pending the finalisation of the macro-hedging standard, the Hong Kong Institute
of Certified Public Accountants (“HKICPA”) offers different options to deal with the
accounting for micro hedging, either by applying partially of fully HKFRS 9 or
continuing to apply HKAS 39.
It’s clear form the study that Implementing the
standard for the first time was a complex exercise and variations in
implementation and impact are to be expected at this stage of the journey.
However, as the journey continues, banks will need to continue to refine their
risk and finance processes in the coming years. Such an approach will not only
ensure full compliance with the standard, but reduce the cost in the
preparation of their financial statements.
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