Financial regulators’ ability to effectively supervise the institutions which they are responsible for overseeing and, in particular, to monitor that these institutions are meeting the required prudential standards, including the internationally agreed Basel III rules and the EU’s Solvency II framework for insurance, relies on their understanding of the financial information submitted to them. Most of this information is (directly or indirectly) taken from the financial statements produced by banks and insurance companies. In the EU and in many other countries around the world, these financial statements are drawn up using International Financial Reporting Standards (IFRS) set by the IASB.
However, many financial regulators do not come from an accounting background and have only an imperfect understanding of the principles behind IFRS and of the judgments that are made when the reporting standards are applied in practice. This limits their ability to make full use of the information contained in bank and insurance company financial statements, so making them less effective regulators.
The main objective of this workshop was therefore to enhance participants’ understanding of IFRS – both of the current form of the standards and of the changes that are due to be introduced in the near future - so that they could use this knowledge to improve the effectiveness of prudential regulation.In this respect, the workshop focused on:
raising the awareness of participants on the level of judgment needed when applying IFRS in general;
enhancing participants’ understanding of those IFRSs that are most relevant to financial and prudential supervision: the standards on financial instruments (IAS 39 and its proposed replacement, IFRS 9; IAS 32 and IFRS 7 on disclosures) and the standard on insurance contracts (IFRS 4, which the IASB is planning to replace with a new standard); and
learning from the experience of regulators and former regulators in enforcing the application of IFRS.
Running through the workshop was a common theme: the need for regulators to understand the assumptions and judgments that are made in putting together IFRS-based financial statements so that they can make sound judgments themselves and carry out their regulatory work more effectively.
The core of the workshop’s program was a series of technical sessions led by three member of the IASB Board (Philippe Danjou, Amaro Gomes, and Darrel Scott) and a number of the IASB’s technical staff, including the Director of its Education Initiative, Michael Wells.
Interview with Philippe Danjou, Board Member, IASB
These technical sessions included a substantial interactive element, where participants used electronic voting to answer questions on accounting issues arising from the material that had been presented during the session. The overall results of this voting could be displayed immediately. This illustrated clearly the areas where participants found the standards difficult to interpret and also helped to stimulate discussion.
In addition to these technical sessions, CFRR staff moderated several very useful discussions of more general issues, including a lively debate on the differences in perspective between prudential regulators and other users of IFRS-based financial statements.
The workshop was attended by 60 staff from regulatory agencies responsible for supervising banks, insurance companies and securities exchanges in 19 countries including EU member states in Central and Eastern Europe, EU candidate and potential candidate countries in South-Eastern Europe and the countries of the EU’s Eastern partnership (including five countries that will be taking part in the CFRR’s new STAREP program). Participants indicated that they had found the workshop very useful and called for a follow-up event to be organized next year.
All of the material presented at the workshop and video footage of each of the main sessions are available (see below).
Presentations for download
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