Affiliations: The University of Sydney Business School, Sydney, Australia
Note: [] Corresponding author: Dr. Tyrone M. Carlin, CPA Professor of Financial Reporting and Regulation, The University of Sydney Business School, NSW 2006, Australia. Tel.: +61 2 9036 7230; Fax: +61 2 9351 7471; E-mail: [email protected]
Abstract: This paper examines the response of a sample of Asian banks to the recognition of loan loss provision in the face of a gathering economic storm. Drawing on empirical data from 2006 through 2008, this paper focuses on the level of loan loss provisioning undertaken by the banks, with a view to generating insights into the effectiveness of the approach to loan impairment and provisioning prescribed by IAS 39 – Financial Instruments: Measurement and Recognition. Given that the focus of impairment decision making under IAS 39 is historically oriented rather than future oriented, we argue this may result in the diminution in the decision usefulness of the content of bank financial statements in the face of imminent, though not yet manifested economic distress. Despite evidence that substantial portions of the globe's financial and economic fabric was in a state of severe distress over this period, our analysis of the financial disclosures of the sample of Asian banks shows a picture at odds with this larger reality. We argue that this response is shaped by the requirements of the newly introduced accounting standard and that a broadening of the legitimate sources of evidence upon which loan impairment recognition decisions may be based pursuant to IAS 39 should be a matter of priority.
Keywords: Loan impairment, financial statements, Asian banking sector, IAS 39, incurred loss approach
