Conceptual rules for application of IFRS 9 Financial Instruments

The Bank of Russia, with a view to informing the bank community of the implementation in a regulatory framework for credit institutions of the International Financial Reporting Standard (IFRS) 9 Financial Instruments principles, which came into effect in the Russian Federation in accordance the RF Ministry of Finance Order No. 98n, dated 27 June, 2016 (further referred to as IFRS 9, advises as follows:

Based on IFRS 9 principles, the Bank of Russia developed draft regulatory acts (further referred to as draft regulations):

• Draft Ordinance ‘On Amending Bank of Russia Regulation No.579P, Dated 27 February 2017, ’On Chart of Accounts for Accounting Purposes in Credit Institutions and the Procedure for Using it’, wherein new accounting requirements are established for securities trading and funds lending (placement) and borrowing
• Draft Ordinance ‘On Amending Bank of Russia Regulation No. 372-P, Dated 4 July 2011, ‘On the Procedure for Accounting Derivatives’
• Draft Regulation ‘Sectoral Standard for Accounting Hedging Operations by Credit Institutions’
• Draft Ordinance ‘On Amending Bank of Russia Regulation No. 446-P, dated 22 December 2014, ‘On the Procedure to Determine Credit Institutions’ Revenues, Expenditures and Other Aggregate Income’

The above draft regulations have passed the public consultation procedure, with Bank of Russia divisions’ approvals pending.

The Bank of Russia Board of Directors is expected to approve these draft regulations before the end of this year.

As regards building accounting data on estimated loan loss provisions calculated on the basis of IFRS 9 principles, the above draft regulations envisage the following conceptual rules. First, credit institutions should account for their loss provisions according to prudential accounting rules, whereafter they should adjust the amount of loss provisions to the amount of estimated loan loss provisions using adjustment accounts which correspond to income or expenditure accounts.

A similar approach is used in Bank of Russia’s regulatory acts regarding accounting at non-bank financial institutions and, in particular, their records of insurance reserves.

In parallel, the Bank of Russia is elaborating regulations to cover the procedure for prudential provisioning and acknowledgement of the above adjustments when calculating the amount of a credit institution’s capital.

Once fully developed, this regulatory framework is meant to enable credit institutions to apply IFRS 9 principles in their accounting practices starting from 1 January 2019.

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