Unveiling the expected loss model in IFRS 9 and Circular 4/2017.

Artículo de revistaAs a result of the Great Financial Crisis, the G-20 requested that the accounting standard setters change the model for estimation of credit losses (or “provisions”). Following this mandate, the “expected loss” model replaced the “incurred loss” model in order to favor a more timely and adequate estimation of credit losses. We explain that, from a conceptual perspective, the expected loss model may help to achieve this goal because it requires credit losses to be recognized from the origination of the transaction and the level of provisions to be increased when the credit quality of the transaction worsens but it has not defaulted. The scant data available so far seem to confirm these conceptual insights. Some criticisms of the expected loss model allude to its pro-cyclicality, without considering that an efficient accounting standard should not repress volatility, by giving a false image of stability, as the incurred loss model did. The expected loss model allows for greater subjectivity in its application, but this subjectivity must be understood in a positive manner so as to anticipate more accurately future credit losses, not leaving room for earnings management practices. We campaign for an adequate implementation of the standard as an essential tool to achieve the objectives of all stakeholders (preparers, auditors, regulators and supervisors)

Discretion in the application of the goodwill impairment test in European banks

In the absence of amortization of goodwill, the purpose of this study is to identify whether the impairment test was applied uniformly between 2005 and 2015 at the 45 biggest banks in Europe, during the first decade of IFRS application. Likewise, an attempt has been made to verify whether such application has been insufficient and late. Through a significant sample, statistical tools already widely used in other studies have been applied to contrast the behavior of entities. The results obtained show that impairment policies have been applied unevenly in each of the countries. These conclusions could support the return to a valuation pattern that takes into account the systematic amortization of goodwill, apart from its impairment. This paper reveals how impairment in European banks has been recognized during a crucial period of time that includes a major financial crisis. The study suggests a discretionary and opportunistic implementation of accounting regulations which does not reveal the economic conditions inherent to the financial activity of the leading European banks, making comparability difficult and, ultimately, making the financial information less relevant.Discrecionalidad en la aplicación del test de deterioro del fondo de comercio en la banca europea Dada la ausencia de amortización del fondo de comercio, el objetivo de esta investigación se concreta en identificar si el test de deterioro, entre los ejercicios 2005 y 2015, primera década de aplicación de las NIIF, ha sido aplicado de manera homogénea y coherente por los 45 mayores bancos europeos. Asimismo, se ha tratado de comprobar si dicha aplicación ha podido ser insuficiente y tardía. A través de una muestra significativa, se han aplicado herramientas estadísticas ampliamente utilizadas en otros estudios, para contrastar el comportamiento de las entidades. Los resultados obtenidos evidencian que las políticas de deterioro han sido aplicadas de manera desigual en cada país. Estas conclusiones podrían soportar la vuelta a un patrón de valoración que considerase la amortización sistemática del fondo de comercio, aparte de su deterioro. El trabajo muestra la aplicación del deterioro en los bancos europeos, durante un periodo temporal de especial importancia, puesto que incluye los años de crisis financiera. El estudio sugiere una implementación de la normativa contable que puede ser calificada de discrecional y oportunista en la contabilización del fondo de comercio