Annual_Report2014

Annual Report 2014
Irish Auditing & Accounting Supervisory Authority
14
Paragraph 31 of IFRS 7 requires that ‘An entity
shall disclose information that enables users of its
financial statements to evaluate the nature and
extent of risks arising from financial instruments
to which the entity is exposed at the end of the
reporting period’.
Paragraphs 33 and 34 of IFRS 7 require, for
each type of risk, qualitative and quantitative
disclosures including explanation for changes
therein and require disclosures of concentrations
of risk if not apparent from the disclosures.
Paragraph 35 of IFRS 7 states that ‘If the
quantitative data disclosed as at the end of the
reporting period are unrepresentative of an entity’s
exposure to risk during the period, an entity shall
provide further information that is representative’.
In deciding on the level of detail to present and
how to aggregate information without combining
information with different characteristics,
paragraph B3 of IFRS 7 requires that ‘an entity
shall not obscure important information by
including it among a large amount of insignificant
detail. Similarly, an entity shall not disclose
information that is so aggregated that it obscures
important differences between individual
transactions or associated risks’.
Paragraphs 112(c), 122 and 125 of IAS 1 Presentation
of Financial Statements require disclosure of:
(a) information that is not presented elsewhere in
the financial statements but is relevant to an
understanding of items;
(b) the significant accounting policies and
judgements that management has made in
the process of applying policies; and
(c) the sources of estimation uncertainty.
Findings
IAASA was concerned that the disclosure of
forborne loans and forbearance measures in the
financial statements of the financial institutions
did not adequately reflect the risks arising from
exposure to the forborne loan portfolio and the
impact that forborne loans have on the institutions’
financial performance, financial position and future
cash flows.
Following an examination of the forbearance
disclosures of the main financial institutions that
come within its supervisory remit (i.e. Allied Irish
Banks plc, Bank of Ireland and Permanent TSB
Group Holdings plc), IAASA was of the view that
the disclosures provided in their annual reports
did not comply in full with the relevant financial
reporting standard. Those financial institutions
were required to provide additional and more
disaggregated forbearance disclosures and to
include all the required disclosures on forborne
loans within their future audited financial
statements.
IAASA’s view was that the granting of forbearance
measures to selected borrowers, while not
necessarily indicative of an impairment loss, was
indicative of an elevated level of credit risk and
the underlying financial stress amongst a material
component of a financial institution’s borrowers.
Loans that had been the subject of forbearance
measures posed a more significant and elevated
risk to the performance and financial position of
the financial institution as opposed to the risks
from non-forborne loans. The key performance
metrics of forborne loans were likely to exhibit a
higher probability of default, higher loan to value
ratios and an elevated level of impairment charges
and uncertain forecast cash flows. Therefore, more
transparent disclosure of the significant levels
of forborne loans and movements therein was
considered necessary for an understanding of the
institution’s performance, financial position and
future cash flows.
In addition, the disclosure of quantitative
information of both forborne and non-forborne
loans in aggregate (without appropriate
segmentation of a type and level of detail applied
to non-forborne loans) could inhibit the ability
of users to understand the risk exposures and
changes in those risks during the year that are
associated with forborne loans. For example,
whether the forbearance disclosures enable
users to fully understand the significance of
loans that are subject to forbearance measures,
how successful or otherwise those forbearance
measures are and their impact on the issuer’s
financial performance, financial position and cash
flows.