The Institute of Certified Public Accountants of Kenya (ICPAK) has released implementation guidelines for the International Financial Reporting Standard (IFRS9).
The new standard has introduced stringent conditions on how banks provide for non-performing loans, with the new guidelines expected to guide institutions on how to effect the new rules which came into effect at the beginning of this month.
The guidelines will be used by financial institutions when they are measuring impairment of their financial assets, with banks expected to increase their cover for bad loans under the new rules.
It guides the classification and measurement, impairment and hedging of financial assets within the institutions.
“We have engaged various stakeholders in the market and due to the complexity of the standards, several challenges are anticipated during its implementation and adoption,” said ICPAK chief executive Edwin Makori.
ICPAK said it consulted Central Bank of Kenya (CBK), Sacco Societies Regulatory Authority (Sasra), Insurance Regulatory Authority (IRA), Capital Markets Authority (CMA), Kenya Bankers Association (KBA), and the audit firms operating in Kenya while developing the guidelines.
Under the IFRS 9 rules, bank customers who have a habit of defaulting on loans are now at risk of not accessing any other such facility, as banks will have to use past loan records to project whether the customer can be able to pay the loan on time.