Share with your friends

Banks – Auditing IFRS 9’s ECL requirements

Banks – Auditing IFRS 9’s ECL requirements

Global accounting networks issue guidance for audit committees


Related content

Global accounting networks issue guidance to audit committees

Audit committees need to be active now, providing strong governance for robust implementation

The new financial instruments standard IFRS 9 Financial Instruments becomes effective in a matter of months, and critical accounting judgements will soon need to be made. Estimating expected credit losses (ECL) is perhaps the single most significant change in banks’ financial reporting.

As part of their oversight role during the adoption of IFRS 9, banks’ audit committees need to assess and monitor the effectiveness of the external auditor’s response to the risks of material misstatement presented by ECL estimates. Expectations of them, and of auditors, are high.

The Global Public Policy Committee (GPPC) – which comprises representatives from the six largest global accounting networks BDO, Deloitte, EY, Grant Thornton, KPMG and PwC – has published a paper that seeks to help banks’ audit committees fulfil this responsibility by providing guidance to help audit committees evaluate the effectiveness of auditors.

The paper is addressed to audit committees of systemically important banks (SIBs), but the principles also apply in a proportionate way to other banks and financial institutions. The paper builds on earlier guidance on implementation published by the GPPC last year.

KPMG has published a quick guide (PDF 282 KB) to the GPPC paper, to give audit committees and preparers an overview of the key contents and principles in 

Application challenges

ECL estimates are generally subject to a high degree of estimation uncertainty. Application is complex for both preparers and audit committees; and demanding for auditors, too.        

  • For preparers and audit committees, it may be difficult to understand the detailed application of the standard and estimates of ECL, as well as the systems and controls implications.       
  • For auditors, high-quality audit approaches will probably rely on documented, well-controlled, high-quality ECL estimation processes.
  • With only months to go now until IFRS 9’s effective date, it will take significant effort from auditors to audit the transition to IFRS 9 in 2018, as well as the 2017 financial statement disclosures about the expected impact of the new standard.

Guidance for audit committees

The GPPC paper will help audit committees consider whether
estimates of ECL, and related audit work, are robust and reasonable. It

  • fundamental concepts for auditing ECL estimates; and        
  • what banks will base their judgements on.

It also includes observations across seven areas that all have a key part to play in successfully auditing ECL.

Next steps

The paper poses key questions for audit committees to discuss with external auditors – if they have not started already, it’s time to engage.

The information in the paper is of a general nature, and banks wlll have to undertake further analysis to apply the standard to their own circumstances. However, we expect that the six large accountancy networks will each use the paper to enhance the quality of auditing and financial reporting.

Auditors and audit committees should read this paper in conjunction with the revised ISA 540 Auditing Accounting Estimates, once it has been finalised.

Although this paper focuses on impairment, audit committees and auditors of banks will also need to consider classification and measurement of financial instruments, hedge accounting and related disclosures under IFRS 9. 

Find out more

We encourage bank executives and board members to read the paper (PDF 325 KB) and consider how to incorporate its recommendations into their IFRS 9 application plans. Our quick guide (PDF 282 KB) to the paper is available to download.

Visit our IFRS – Financial instruments hot topics page for the latest developments on the ECL accounting model in IFRS 9.

And visit our IFRS for Banks hot topics page for the latest on IFRS developments that directly impact banks, and the potential accounting implications of regulatory requirements.

© 2021 KPMG Central Services, a Belgian Economic Interest Grouping ("ESV/GIE") and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 

For more detail about the structure of the KPMG global organization please visit

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today