IFRS vs. Basel requirements for banks
The introduction of International Financial Reporting Standards (IFRS) in Europe and the amendments of the regulatory framework (Basel II+III) lead to enhanced risk and capital disclosure requirements and requirements for risk management procedures.
Basel II conducts a move away from narrow and prescriptive rules towards a wider, more risk- and principles-based approach to regulation that focuses on the institution’s own assessment and management of risks.
Meanwhile, the International Accounting Standards Board (IASB) started to recognise risk as an integral component of IFRS financial statements, both in extending the range of disclosures and in aiming to ensure that information used by management is reflected in financial statements.
Although IFRS and regulatory reporting serve different purposes, the two are becoming increasingly aligned as supervisory authorities and the IASB seek to extend the synergies.
Effective risk and capital management are of critical importance to the market and institutions need to be able to present decision useful disclosures to present a consistent and coherent picture to stakeholders. In order to achieve this goal, IFRS rules and the corresponding Basel presentations need to be consistent. While this may be viewed as a challenge, institutions have a range of opportunities to analyse synergies that could help to reduce implementation cost, ease disruption and enhance transparency.