IAS 17 and Liquidity Coverage Ratio: Difference between pages

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imported>Doug Williamson
(Added the new IFRS 16 standard on Leases to See also. Not clear at this point whether IFRS 16 is replacing IAS 17)
 
imported>Doug Williamson
(Amend link.)
 
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International Accounting Standard 17, dealing with leases.
''Bank regulation''.


IAS 17 requires finance lease liabilities to be accounted for 'on balance sheet'.
(LCR).


It also requires the appropriate allocation of the total lease instalments between finance charges and reduction of the outstanding lease liability.
The LCR is a requirement under Basel III for a bank to hold high-quality liquid assets (HQLAs) sufficient to cover 100% of its net cash requirements over 30 days.  


It applies throughout the European Union.


The LCR has been implemented in stages from 2015, to reach the 100% requirement by January 2019.


Under IAS 17 the total finance charge should be spread in such a way as to produce a constant periodic rate of interest on the remaining balance of the liability.


However, IAS 17 also allows for some form of approximation to be used to simplify the calculation.
It reduces the value to a bank of cash deposits of less than 30 days tenor because they are only worth the income on the HQLAs if a bank forecasts no short term cash receipts to cover repayment.  


Fully accurate calculation bases for spreading the total finance charge include the Actuarial method.
The purpose of this requirement is to ensure that banks can manage stressed market conditions, under which the bank is assumed to suffer substantial outflows of the cash previously deposited with it.
 
The Sum of the digits method is simpler to apply, and will normally produce a close approximation.
 
 
 
=== Future developments ===
 
Differences in accounting standards can lead to significant non-comparability. A joint IASB-FASB project is seeking to improve and align accounting for leases by developing an approach that is more consistent with other definitions of assets and liabilities.
 
The project would result in a replacement of IAS 17.




== See also ==
== See also ==
* [[Actuarial method]]
* [[Basel III]]
* [[FASB]]
* [[European Union]]
* [[Finance charge]]
* [[Net Stable Funding Ratio]]
* [[Finance lease]]
* [[Cash investing in a new world]]
* [[IASB]]
* [[HQLA]]
* [[International Financial Reporting Standards]]
* [[Level 1 liquid assets]]
* [[Off-balance sheet finance]]
* [[Level 2 liquid assets]]
* [[Operating lease]]
* [[Leverage Ratio]]
* [[SSAP 21]]
* [[Liquidity buffer]]
* [[Sum of the digits]]
* [[Liquidity risk]]
* [[IFRS 16]]
* [[LR]]
* [[OLAR]]
* [[Pillar 1]]
* [[Required Stable Funding]]
* [[Survival period]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Compliance_and_audit]]
[[Category:Liquidity_management]]

Revision as of 11:55, 17 November 2016

Bank regulation.

(LCR).

The LCR is a requirement under Basel III for a bank to hold high-quality liquid assets (HQLAs) sufficient to cover 100% of its net cash requirements over 30 days.

It applies throughout the European Union.

The LCR has been implemented in stages from 2015, to reach the 100% requirement by January 2019.


It reduces the value to a bank of cash deposits of less than 30 days tenor because they are only worth the income on the HQLAs if a bank forecasts no short term cash receipts to cover repayment.

The purpose of this requirement is to ensure that banks can manage stressed market conditions, under which the bank is assumed to suffer substantial outflows of the cash previously deposited with it.


See also

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