Paper Infomation
The Impact of New Standard of Financial Instruments on Commercial Banks- A Case Study of Industrial and Commercial Bank of China
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Author: Yubo Li, Shiyu Ji
Abstract: In July 2014, 《International Financial Reporting Standard 9：Financial Instruments》（Referred to IFRS 9）was formally published. Compared to the former standard,《International Accounting Standard 39: Financial Instruments》(Referred to IAS 39), rules of two main aspects, the classification and measurement of financial assets and the impairment model of financial assets have been changed in IFRS 9. Taking ICBC as an example, this paper studies the impact of changes in financial instruments on commercial banks. The study shows three impacts on commercial banks’ financial report. Firstly, the changes of the classification and measurement of financial assets will have limited impacts on commercial banks. Secondly, the expected-loss model will significantly increase the loan loss reserves under the new standard, thus reducing the net asset and net profit. Thirdly, the change in the measurement way of the equity instruments of available-for-sale securities will increase the fluctuation of the net profit. This study shows investors and regulators the impact of the new standard of financial instruments on commercial banks.
Keywords: New Standard of Financial Instruments, Commercial Bank, Industrial and Commercial Bank of China
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