ECCB 2016/2017 Annual Report

ECCB ANNUAL REPORT 2016/2017

79

Eastern Caribbean Central Bank Notes to the Financial Statements March 31, 2017 (expressed in Eastern Caribbean dollars)

EASTERN CARIBBEAN CENTRAL BANK NOTES TO THE FINANCIAL STATEMENTS

(expressed in Eastern Caribbean dollars)

March 31, 2017

2. Summary of significant accounting policies …continued a) Basis of preparation ...continued

New, revised and amended standards and interpretations issued but not yet effective …continued IFRS 9, ‘Financial Instruments’ …continued IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. The Bank is still assessing the potential impact of adoption but it is not possible at this stage to quantify the potential effect. The Bank expects that, in many instances, the classification and measurement outcomes will be similar to IAS 39, although differences may arise. The combined effect of the application of the business model and the contractual cash flow characteristics tests may result in some differences in population of financial assets measured at amortised cost or fair value compared with IAS 39. Regarding credit loss provisioning, the Banks expects that, as a result of the recognition and measurement of impairment under IFRS 9 being more forward-looking than under IAS 39, the resulting impairment charge may tend to be more volatile. It may also tend to result in an increase in the total level of impairment allowances, since all financial assets will be assessed for at least 12-month ECL.  IFRS 15, ‘Revenue from Contracts with Customers’ (effective for annual periods beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.