Comments on: AASB 139 (IAS 39) in Australia - The main challenges for Banks http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/ Risk Management in Australia Wed, 23 Jul 2008 19:43:27 +0000 http://wordpress.org/?v=MU By: Bruce M http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26357 Bruce M Fri, 27 Jun 2008 16:16:07 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26357 I have seen some utter nonsense for impaired/not impaired/ past due in accounts this year (uk banks). Can't believe the auditors signed it off. I have seen some utter nonsense for impaired/not impaired/ past due in accounts this year (uk banks).

Can’t believe the auditors signed it off.

]]> By: Andrew http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26298 Andrew Wed, 21 May 2008 08:07:20 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26298 Akshay, They are taken immediately to the income statement - as all fees were prior to IAS 39. Akshay,
They are taken immediately to the income statement - as all fees were prior to IAS 39.

]]> By: Akshay Kakar http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26297 Akshay Kakar Wed, 21 May 2008 06:53:00 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26297 Andrew, Just continuing with the previous discussion, in case of fees which are not attributed directly to loan and so cannot be carried in EIR, where is such income reflected on the income statement? Is it to be taken lumpsum in the first year of origination itself in a heading 'fees'...??? Andrew,
Just continuing with the previous discussion, in case of fees which are not attributed directly to loan and so cannot be carried in EIR, where is such income reflected on the income statement? Is it to be taken lumpsum in the first year of origination itself in a heading ‘fees’…???

]]> By: Andrew http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26292 Andrew Mon, 19 May 2008 13:28:00 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26292 On the specific ISDA point - I am not aware of legal entanglements that have arisen. As the basic calculation methodologies for most derivatives are well understood it normally comes down to an argument about parameters where there is a difference. These then can come down to experts at 10 paces, but rarely legal entanglements. Of course, someone else may know better. Clive - any experience of this? On the specific ISDA point - I am not aware of legal entanglements that have arisen. As the basic calculation methodologies for most derivatives are well understood it normally comes down to an argument about parameters where there is a difference. These then can come down to experts at 10 paces, but rarely legal entanglements.
Of course, someone else may know better. Clive - any experience of this?

]]> By: Akshay Kakar http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26291 Akshay Kakar Mon, 19 May 2008 09:19:23 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26291 Have there been any cases where the fair value of derivatives as calculated by banks (if the bank is the calculating agent in the ISDA schedule for MTM losses) and the fair value calculated by companies / valuation agents been different and this leading to legal entanglements? Have there been any cases where the fair value of derivatives as calculated by banks (if the bank is the calculating agent in the ISDA schedule for MTM losses) and the fair value calculated by companies / valuation agents been different and this leading to legal entanglements?

]]> By: Andrew http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26290 Andrew Mon, 19 May 2008 08:13:25 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26290 No, unfortunately. The difficulty was to seperate out the ones that were purely contractual from the ones that were not. A good example would be an annual fee paid in advance. Normally this would be seen as not included in the EIR (as it is an annual fee, not related to the interest rate) but if it was noon-refundable on early closure then it may well be seen as an inception fee, and therefore included in the EIR. Previously, most banks had just lumped them all together under "fees". Breaking these out needed a lot of work to understand and categorise the fees, followed by a process to ensure they were dealt with correctly in the back end systems. It was a lot of work. No, unfortunately. The difficulty was to seperate out the ones that were purely contractual from the ones that were not. A good example would be an annual fee paid in advance. Normally this would be seen as not included in the EIR (as it is an annual fee, not related to the interest rate) but if it was noon-refundable on early closure then it may well be seen as an inception fee, and therefore included in the EIR.
Previously, most banks had just lumped them all together under “fees”. Breaking these out needed a lot of work to understand and categorise the fees, followed by a process to ensure they were dealt with correctly in the back end systems.
It was a lot of work.

]]> By: Akshay Kakar http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26289 Akshay Kakar Mon, 19 May 2008 07:39:17 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-26289 From what I read of the latest IAS 39 clauses (and corresponding clauses in AS 30 - Derivative accounting standard for India; produced below), there seems to be no requirement to seperate -'all the fees and costs to determine which were directly related and which were not'. If so, why was this a problem in Australia...??? (Refer Heading - Held to Maturity / Loans and Receivables of Article). Another case of different applcation in different countries? (Clause A23. When calculating the effective interest rate, an entity should estimate cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but should not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.) From what I read of the latest IAS 39 clauses (and corresponding clauses in AS 30 - Derivative accounting standard for India; produced below), there seems to be no requirement to seperate -’all the fees and costs to determine which were directly related and which were not’. If so, why was this a problem in Australia…??? (Refer Heading - Held to Maturity / Loans and Receivables of Article). Another case of different applcation in different countries?

(Clause A23. When calculating the effective interest rate, an entity should estimate cash flows
considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but should not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the
effective interest rate, transaction costs, and all other premiums or discounts.)

]]> By: ozrisk http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-54 ozrisk Sat, 30 Sep 2006 13:59:02 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-54 Penguin, I have some inside knowledge on that one, but the main reason was the differences in both the legislative and economic picture between there to here. The regulator in the UK (now the FSA) did not do the (silly?) thing that APRA / the RBA did here and mandate the 0.5% of RWA as the general provision - so there was less to write back when the change came. The increase in the specific provision reflects the differing tax treatment that they used to get - in the UK you could take the tax deduction as soon as you provided specifically - not, as is the case here, when you finally wrote it off. The incentive in the UK, then, was to specifically provide ASAP to bring forward the tax deduction. In this case, therefore, the new standards actually forced the correct outcome from the stupidity that came before - and did act to standardise the treatment. You can also see why the banks were fighting to maintain the old treatment in the UK as the new now reduces their early tax deduction. Penguin,
I have some inside knowledge on that one, but the main reason was the differences in both the legislative and economic picture between there to here.
The regulator in the UK (now the FSA) did not do the (silly?) thing that APRA / the RBA did here and mandate the 0.5% of RWA as the general provision - so there was less to write back when the change came.
The increase in the specific provision reflects the differing tax treatment that they used to get - in the UK you could take the tax deduction as soon as you provided specifically - not, as is the case here, when you finally wrote it off. The incentive in the UK, then, was to specifically provide ASAP to bring forward the tax deduction.
In this case, therefore, the new standards actually forced the correct outcome from the stupidity that came before - and did act to standardise the treatment.
You can also see why the banks were fighting to maintain the old treatment in the UK as the new now reduces their early tax deduction.

]]> By: penguinunearthed http://ozrisk.net/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-52 penguinunearthed Sat, 30 Sep 2006 10:59:24 +0000 http://ozrisk.wordpress.com/2006/09/28/aasb-139-ias-39-in-australia-the-main-challenges-for-banks/#comment-52 From what I saw of the impairment stuff, the international situation was quite different. For example, the UK had the opposite mix from Australia of general vs specific provisions for impaired loans (Australian banks had a small specific and large general, and the UK the other way around, I think it was), but in both countries, banks were trying very hard to justify little change in provisions. It's sad that international accounting standards still don't seem to be very international. From what I saw of the impairment stuff, the international situation was quite different. For example, the UK had the opposite mix from Australia of general vs specific provisions for impaired loans (Australian banks had a small specific and large general, and the UK the other way around, I think it was), but in both countries, banks were trying very hard to justify little change in provisions.

It’s sad that international accounting standards still don’t seem to be very international.

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