International Financial Reporting Standard (IFRS) 9 and the Financial Performance of Commercial Banks in Kenya

Abstract

The International Financial Reporting Standard (IFRS) 9 presents the latest accounting treatment for financial assets and liabilities, impairment procedures, hedge and fair value accounting. This new regulation largely replaces the International Accounting Standards 39. The last form of IFRS 9 was published in July 2014 with the mandatory global compliance date for IFRS 9 set on January 1, 2018, with earlier application encouraged. The main distinctive features of this standard are described in terms of hedge accounting, recognition and classification, and fair value measurement of the financial instruments. The objective of the research study was to determine the impact of the mandatory adoption of IFRS 9 on the financial performance of commercial banks in Kenya. The study adopted an event study approach or design by analyzing the quarterly financial statements of the commercial banks submitted to the Central Bank of Kenya and comparing the performance of the commercial banks before the introduction of the IFRS 9 and after its adoption. The study’s findings were that returns on assets and returns on equity were on an upward trend despite the introduction of IFRS 9. This was contrary to the expectation of poor performance since lower earnings due to loan loss provisions were expected to have a material effect on profitability.

Assessing the Impact of International Financial Reporting Standards (IFRS) through Bibliometric Research

“…The adoption of International Financial Reporting Standards (IFRS) has been a global effort to harmonize accounting practices and ensure cross-border comparability. IFRS implementation has been observed in various countries, including Ukraine [1], Nigeria [2], the UK, France, and Germany [3], as well as Kenya [4]. These studies have examined the impact of IFRS adoption on financial reporting quality, value relevance, and financial performance.…”

“…These studies have examined the impact of IFRS adoption on financial reporting quality, value relevance, and financial performance. The findings have been mixed, with some studies reporting improved quality and value relevance [3], [5], while others have found varying results [4]. Additionally, the adoption of IFRS has been associated with increased foreign direct investment (FDI) in certain countries.…”