Risk officers are advocating processes that would allow banks to jointly implement the International Financial Reporting Standard (IFRS), Basel I and Basel II Accords, The Nation has learnt.
The IFRS are principle-based standards, interpretations and the framework adopted by the International Accounting Standard Board (IASB) that requires disclosure on a range of issues, including risk management measures and changes in accounting policy.
Risk Expert and Chairman, IFRS Interpretations Committee, at the IASB, Bob Garnett confirmed the possibility of a joint implementation of the IFRS by lenders to The Nation at an IFRS meeting organised by Ernst & Young in Lagos.
He said how much a bank achieves in terms of data integrity and efficient financial reporting, is hinged on its application of IFRS models and Basel I and II Accords.
Basel Accord, analysts said, is a set of agreements set by the Basel Committee on Bank Supervision (BCBS), which provides recommendations on banking regulations with regards to capital risk, market risk and operational risk.
The Basel II, which is to be fully implemented by 2015, focuses on three main areas, including minimum capital requirements, supervisory review and market discipline, known as the three pillars.
The thinking is that although banks cannot be stopped from taking risks associated with their businesses, but they must put in place structures and processes that will hedge against loss.
Nr Garbett said banks are in the business of taking risks, for without risk taking, the possibility of making money becomes illusive.
“So, while one cannot stop financial institutions from taking risks, a failed financial system has serious adverse implications on the economy. That explains why all over the world, banks and financial institutions are the most highly regulated,” he said.
Garnett said the process whereby banks manage their market risk, reputational risks, environmental risks, and all other risks that face financial institution, in a disparate form, may not produce the best result.
“We have all risk managers scattered everywhere and when you manage risks with such approach, the institution will fail. The modern approach to risk management is what is referred to as enterprise risk management system. It is an integrated approach to risk management system,” he said.
The expert urged the adoption of regulatory processes to ensure that banks comply with risk management procedures, adding that harmonising the IFRS and Basel Accords, would give Nigerian banks’ financials, better credibility.
He said the IFRS, which requires disclosure on a range of issues, including risk management measures and changes in accounting policy, will ensure that their results for this year are compliant with the international guidelines.
Garnett explained that the global knowledge and expertise reduces the risks of getting things wrong, adding that the adoption of the model will further enhance transparency and facilitate the restoration of investor’ confidence in the on-going efforts to sanitise and rebuild the financial services sector.
