Financial markets

Heraclitus, an ancient Greek philosopher who lived around 500 BC said “The only thing that is constant is change.” This quote is apt for the world of banking in the 21st century. Since the global financial crisis of 2008, there has been a significant change in the way banks conduct their business, how banks are regulated and the accounting for financial instruments.

So, the key question is:  What is the impact of these changes on bank’s financial statements?

Whether you are an accountant, CFO, auditor, regulator or analyst, the new accounting standard on financial Instruments is likely to significantly affect what you do. IFRS 9 Financial Instruments introduces improvements to accounting for financial instruments that could affect the way entities manage their financial assets, price products and implement risk management.

Chartered surveyors can benefit from having a general knowledge of corporate finance transactions. The main activities involved are around raising finance and investing capital.

If a company needs finance, there are various questions that need to be answered. Should the company borrow money or issue more shares? What are the pros and cons of issuing and investing in debt and equity? What are the lending criteria for banks providing loan finance to a real estate company? When should a private company go public by making an Initial Public Offering (IPO) of its shares?

A light touch regulation of the global financial markets has now become exactly the opposite after the financial crisis in 2008. The comprehensive regulatory changes led by the US and Europe are still emerging and aiming on most part to make the markets more transparent, efficient, cost effective and safer for both professional and retail customers.

What is the impact of these regulations on the estimated over USD 700 trillion (in terms of outstanding notional amounts) global derivatives market? Amidst the uncertainty, serious costs and compliance implications of new and emerging regulations, here are my views on what will happen to the derivatives markets in coming 5 to 10 years:

The International Accounting Standards Board (IASB) issued the completed version of IFRS 9 Financial Instruments in July 2014. This standard will replace IAS 39 Financial Instruments: Recognition and Measurement, and is effective from 1 January 2018.

IAS 39 has been widely criticised as being too complex to understand and apply. Sir David Tweedie, former chairman of the IASB mentioned that if anyone went to him and said that he/she had read IAS 39 and understood it, he knew that person was lying. So, whilst IFRS 9 is a welcome change, is it a case of “Too little, too late”?

International Financial Reporting Standards (IFRS) has in the last 10 years become a global financial reporting language. We now have well over 100 countries that prepare IFRS financial statements for their large companies. As a precursor to our upcoming workshop on “Application of IFRS” from 16th to 19th June in Doha, I have analysed five key reasons why finance professionals need to be updated on IFRS:

Hedging is a practice which involves taking a market position to manage risks. Derivatives are often used to manage exposures to interest rate, currency, price and credit risks that corporate and financial institutions are not willing to accept on their balance sheet. What hedging solutions are available to corporate and financial institutions?