A team of academics from Lancaster University Management School (LUMS) are working with the organisation responsible for setting global accounting standards on a new project.

The IFRS Foundation have appointed Professor Argyro Panaretou, Dr Wendy Beekes, and Sam Rawsthorne to provide research that will assist the International Accounting Standards Board (IASB)review application of key International Financial Reporting Standards (IFRS).

IASB is the standard-setting board that develops the IFRS Accounting Standards. The Standards are required in more than 140 jurisdictions and permitted in many more.

The Lancaster project will investigate how listed companies provide credit-risk related information in their annual financial statements, whether this is easily accessible, comparable between businesses, and understandable, and how they apply the credit risk disclosure requirements in IFRS 7 Financial Instruments: Disclosures.

The researchers from Lancaster’s Department of Accounting and Finance have expertise that covers accounting for financial instruments and corporate disclosure, and Professor Panaretou said: “Our work involves surveying credit risk reporting practices in annual reports, and summarising current practice. My own expertise is in accounting for financial instruments, Wendy focuses on corporate disclosures and corporate governance, and Sam examines corporate disclosure on how companies communicate their approach to creating and maintaining value in annual reports.

“Information on financial instruments is important for assessing systemic risk, and there are questions over what kind of information is important for investors. This consultancy project provides a great opportunity for all our research to provide practical support to the accounting standard setters.”

The Lancaster team’s findings will provide academic research support to the IASB’s post-implementation review of IFRS 9 Financial Instruments, specifically the impairment requirements and the related credit risk disclosures in IFRS 7. The review is assessing the effects of applying new accounting requirements on users and preparers of financial statements, auditors, and regulators.

IFRS 9 is the financial reporting standard that specifies the accounting treatment of financial instruments – contracts that result in a financial asset in one entity and a financial liability or equity in another. Examples include stocks, mutual funds, bonds, bank deposits, and loans. Companies have different ways of valuing these financial instruments, which are presented in annual reports and other documentation.

IFRS 9 was developed in response to the global financial crisis, following calls for more timely recognition of loan losses and a forward-looking impairment model. Impairment requirements in IFRS 9 deal with how an organisation should recognise expected credit losses for financial instruments. IFRS 7 requires organisations to disclose information that enables users of financial statements to understand and evaluate how expected credit losses were determined.

From left: Dr Wendy Beekes, Professor Argyro Panaretou, Sam Rawsthorne