IFRS effects on banking - Term Paper Example

Effects of IFRS on the U.S. banking industry IFRS Conversion Contents Contents 2 Effects of IFRS on the U.S. banking industry 3 Presentation and disclosures: 3Consolidation requirements: 3Financial instruments: 4Affect of lease accounting: 4Process and system of the company: 4Works Cited 5Effects of IFRS on the U.S. banking industry The transition of the Generally Accepted Accounting Principles to the International Financial Reporting Standards has raised many questions for the accounting world of the US.

As it has affected almost all the industries in the US, it has largely affected the banking industry in many ways.Presentation and disclosures: The foremost affect of the use of IFRS instead of GAAP will affect the general presentation of the financial statements as the requirements differ from each other. Many variations are possible as the IFRS gives a wide range of choices for the presentation and disclosure of the financial data and the banking company will have to decide carefully regarding the presentation and disclosure so as to keep consistent with other companies.

Specifically, disclosures of financial instruments mentioned in the IFRS will have to be given extensive attention to comply with the requirements of the IFRS.Consolidation requirements: The consolidation requirements of the IFRS require that the statement mentions all the subsidiaries of the company. Special Purpose Entities (SPE) are formed by banks in order to secure loans, influence the leasing transactions and plan the investments and banks are at times form a part in the SPEs which are not included in the consolidated statements, the IFRS may require consolidation to those SPEs as well.

(International, 2011)Financial instruments: The accounting based on the financial instruments, which an integral part of the banking industry, is also affected as the classification and measurement of the financial instruments is complex with respect to both the standards. (Young, 2011) The measurement of impairment of the financial instruments also involves complexity when a company transits from GAAP to IFRS. The methods of impairment as well as the recognition will also be affected with the use of IFRS in the company.

Affect of lease accounting: The accounting criteria of IFRS for leases is different from that of GAAP and the IFRS requires more lease transactions to be recognized in the accounts of an entity as compared to those required by GAAP. The banks will be greatly affected who do not recognise the operating leases on their balance sheets when the substance of the lease transaction is that the bank has all the rewards and risk transferred to it.Process and system of the company: The adoption of IFRS by a banking sector company will require an additional amount of effort in order to comply with the requirements of the IFRS.

Some premeditated decisions will be needed to be taken to avoid any additional or incremental costs for the transformation. (IAS Plus) The transformation will be dependent on the base of the entity and the systems that are being used by the banking company such as the ERP or other customized systems.Works CitedIAS Plus. (n.d.). Retrieved April 2011, from www.iasplus.com/dttpubs/0811ifrsbanking.pdfInternational, K. (2011). Impact of IFRS: Banking. KPMG .Young, E. a. (2011). Effects of IFRS on the U.S. banking industry.KPMG .