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The Impact of IFRS 9 on Financial Reporting during Covid-19 from the Point of
View of Experts in Europe

Article in Australian Accounting Review · July 2023

DOI: 10.14453/aabfj.v17i4.03

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Ildikó Orbán Oday Tamimi

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AABFJ | Volume 17, No.4, 2023 Orbán & Tamimi: The Impact of IFRS 9 on Financial Reporting during Covid-19

The Impact of IFRS 9 on Financial

Reporting during Covid-19 from the Point of
View of Experts in Europe
Ildikó Orbán 1 & Oday Tamimi 2

Abstract
The present study aimed to clarify the risks that banks are exposed to in light of the Covid-19
pandemic, examine the impact of these risks on the quality of financial reports in banks, with an
indication of how IFRS 9 can either exacerbate or mitigate these risk and its effects on the financial
statements of banks. Finally, provide some solutions to maintain capital adequacy and minimize
pandemic risks to which some banks may be exposed. This study used the descriptive and
inferential statistics, as well as the questionnaire as a tool for collecting data. The analysis of data
by using the statistical program SPSS 25 and Microsoft Excel. Three major findings are outlined
in this study. First, there is a statistically significant relationship between Covid-19 pandemic and
the increased risks to which banks are exposed based on the results of the tests of the hypotheses.
Second, there is a statistically significant relationship between IFRS 9 and the quality of the
financial statements. Finally, there is a statistically significant relationship between IFRS 9 and
bank risks during of the Covid-19 pandemic. The findings of this study are important for bank
executives, auditors, and bodies that set standards for accounting and auditing.

JEL: M40, M41

Keywords: IFRS 9, Covid-19 Pandemic, Financial Instruments, Financial Reporting

1
Department of Accounting, University of Debrecen, Debrecen
2
Department of Accounting, University of Debrecen, Debrecen
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1. Introduction
Banking The economic world has witnessed many recurring banking crises at the local and
international levels over the past forty years like the global financial crisis, the European sovereign
debt crisis, and the non-performing loan crisis, all these tough times in our recent financial history,
indicate the essence of the nature of the risky business of banks (Bholat et al., 2018). The impact
of these crises on the banking sector is exacerbated during of the ability of financial report
preparers to use what they have of experience and accounting skills to deceive the users of financial
statements by using profit management mechanisms, and the practical practices have proven that
bank managers, in general, do not find better than loan provisions in managing their profits
(Gornjak, 2019).
Amid all these previous crises, the Covid-19 pandemic crisis emerged, which dealt a strong
blow to the economy in all countries of the world, has increased its severity on the banking sector
compared to any other financial institution, as a result of its support for the traditional risks that
banks usually face, such as (interest rate, liquidity, credit, market and reputation risks,… etc.)
which is closely related to the daily activities of economic agents (individuals, companies, and
governments), which has led to the intensification and deepening of those risks, the crises of credit
liquidity risk, credit stress, increase in non-performing assets and default rates appeared, which
reduces the return on loans and investments, and lowers interest rates in the market, and the matter
is getting worse, especially in developing countries for which the Covid-19 pandemic will lead to
a complex set of simultaneous outcomes; For example, loans default collectively, and recoveries
become complex and difficult, savings devoured by customers to support daily life, reduced
availability of loanable funds, and lower demand for new investment (Ariella, 2020).
As a result of these economic and moral crises and their impact on the banking sector and
the forced digitalization of financial services sector in Europe (Farkas et al., 2022). Professional
institutions tended to pay attention to the areas of accounting disclosure in financial reports, issuing
standards for changing the regulation of basic products and financial instruments for financial
institutions, including the International Accounting Standards Board (IASB), which was
concerned with issuing standards for increasing transparency in financial institutions, and enabling
the investor to understand the impact of subsequent implementation work, among those standards
that the organization has issued to improve the transparency of financial statements is IFRS 9
which relates to the notes on the financial statement about early disclosures and serves to make it
easier for investors and regulators to obtain information, which provides better analysis and
comparability (Hewa et al., 2020). Which should smooth out fluctuations in bank lending during
the economic cycle, which will have an impact on bank lending and capital distributions (Chawla,
2016). Therefore, the research questions focus on the following issues:
1. What are the risks facing banking banks in light of the successive crises that ended with the
crisis of Covid-19 pandemic?
2. What is the impact of these risks on the quality of financial reports? How does IFRS 9 increase
or reduce the severity of these effects on the financial statements?
3. How can banks maintain capital adequacy and reduce the severity of the risks they are exposed
to under the conditions of Covid-19 pandemic?
The importance of the research stems from three main points: First, given the huge
economic losses that the country and the world at large are going through as a result of Covid-19
conditions, the utmost importance appeared to preserve the economic capabilities of the country,
the most important of which was the banks to preserve its capital. Second, the interest of banks in
raising their value and confidence in their performance among investors was important to know
the impact of IFRS 9, which relate to notes on the financial statement about early disclosures, to
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make it easier for investors and regulators to obtain information and make it available to them,
which provides better analysis and comparability. Finally, the importance of reaching fundamental
solutions to the impact of the standard on the risks faced by banks during of Covid-19 crisis, which
shows its consequences on capital adequacy.

2. Theoretical Framework
2.1 IFRS 9 – Financial Instruments
The As a result of the collapse of the largest international companies due to uncertainty and lack
of transparency, and the emergence of the financial crisis that hit the world in 2008, the importance
of highlight on the problem of income manipulation and the inevitability of preparing accounting
and financial standards that manage and direct dealing with financial instruments, hedging against
potential risks, and controlling the process of recognition of various profits and losses resulting
from entering into transactions, has increased. To reduce the degree of expected risk by using
various contemporary financial instruments (Hashim and O’Hanlon, 2016). This revealed a severe
weakness in the financial adequacy of the bank, and most of these banks had high credit ratings
because the standard of provisions that were formed to meet the weakness of assets was based on
the actual losses, which means when a loan or a particular financial asset defaulted, the appropriate
provision was formed. Therefore, the banks did not know the extent of the weakness of their assets
and the problems that it could cause, and this was a main reason for the financial crisis that erupted
in 2008. The conditions before 2008 were also incorrect, as the financial model was completely
incorrect because banks and institutions do not have information about the adequacy of their
capital to absorb future shocks (Prorokowski, 2018).
All of this led to the emergence of IFRS 9, where the project to develop the standard was
started by the IASB in 2009, at the onset of the financial crisis and in July 2014 the final version
of IFRS 9 for Financial Instruments has been issued, an alternative to IAS 39 Financial
Instruments: Recognition and Measurement, was issued. The application of the new standard
became mandatory since January 1, 2018, and is expected to have a significant impact on the
balance sheet of banks, as it represents one of the central improvements undertaken by
organizations to remove some central rules and prohibitions, it is based on recognizing the
expected credit loss in a timely manner. The initial recognition of the instrument is done by
weighting estimates of potential credit losses (i.e. the present value of the cash shortfall) computed
as the value of the current differences between all contracts of cash flows owed to an entity
according to the contractual terms of the financial instrument and all cash flows that the entity
expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate (Hashim,
and O’Hanlon, 2016).
The standard is an alternative to IAS 39, where in the early years of the twenty-first century,
the accounting for financial assets was still guided by IAS 39, which provides for the use of the
actual loss model to recognize credit losses in profit and loss, when there is physical evidence that
indicates that a loss has been incurred as a result of a decrease in the value of the loan, expected
losses as a result of future events were not recognized, but in the wake of the financial crisis in the
late first decade of the twenty-first century, concerns have been raised about this method,
particularly about the timing of recognizing loan loss expenses, as it was considered too and too
late, and therefore the IASB recommended and the Financial Accounting Standards Board (FASB)
replacing the actual loss method for creating loan loss provisions with alternative approaches that
include a broader set of available credit information, it is an expected loss method using statistical
information to determine potential future losses, consistent with the needs of users of financial
statements and transparency with regard to changes in credit trends and with safety and hedging
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objectives (Hashim and O’Hanlon, 2016).

When analyzing the standard, we find that recognizing the provisions for losses that are
expected and not actual, this leads to the imperative of classification, measurement and accounting
evaluation of assets, liabilities and derivatives by forming precautionary provisions for expected
losses on all credit operations upon their inception and during their various stages of life, where
an accurate and unbiased expected amount is estimated after studying a range of possible
outcomes, and taking into account the time value of money based on reliable and documented
information on current conditions and expected economic events. It also requires when measuring
a set of information, the most important of which are past events, such as the historical experience
in estimating the losses of financial instruments, the following conditions and events, and
expectations that affect the collection of expected future cash flows from financial assets, this
affects profits and regular capital (Begoña and Mora, 2019).

2.2 The Relationship between the Quality of Information in Financial

Reports and IFRS 9 during the Covid-19 Pandemic
At the end of 2019, the world was shocked by an unknown virus from Wuhan, China. This virus
was finally named COVID-19, it was officially classified as a pandemic by the World Health
Organization (WHO) due to its spread around the world, and to try to avoid these health risks,
most governments have tried to contain the virus, by shutting down parts of the economy, with
which the economic cost was enormous, as a result of losing many businesses have lost their jobs
and destroyed trillions of dollars of stock market wealth, which led to a major economic recession,
falling asset prices, and uncertain financial forecasts (Bipasha and Suborna, 2020). Consequently,
some business sectors became indebted and unable to pay the installments of their main loans, or
their interests as a result of being affected by Covid-19 virus, as they stopped corporate revenues,
which affected the profits made, capital and ultimately the financial viability. Therefore, during
this pandemic, banks have to be stricter in approving borrowers (el Barnoussi et al., 2020). As the
pandemic has changed both sides of the equation, by slowing the pattern of credit growth as banks
will not be comfortable lending in a time of crisis or demand for credit will decline when economic
performance does not look like normal, on the other hand, stable banking systems are being
challenged by the subsequent demand from borrowers to banks to reduce the interest rate of loans
(Monica and Stefan, 2019). And bearing in mind that Covid-19 pandemic could significantly
threaten the performance and survival of banks in developing countries, especially in those where
banks play a dominant role in the economy.
One of the biggest problems faced by banks, which has been exacerbated by the pandemic,
is loan losses. As the pandemic is likely to worsen the nonperforming loan (NPL) situation, the
decline in the three dimensions (company value, capital adequacy, and interest income) is more
likely when the NPL rate increases, and the increase in the NPL could force the capital adequacy
of all Banks reduce the minimum requirements of Basel-III (Bolognesi, et al., 2020; Miu and
Ozdemir, 2017). Thus, increasing the problems of internal credit management practices, and the
ratio of provisions to loans shows a low level in the private banking system which is not subject
to strict regulation. From the measurement of loan rating flexibility and provisioning guidance, it
is clear that banks cannot manage the level of non-performing assets.

This can be seen from the increasing demand from borrowers to renegotiate credit as well
as the weakening of various businesses resulting from the impact of the pandemic. Credit risk
increases the cost of credit by affecting provisioning expenses (Oberson, 2021). Credit risk is the
main source of financial crises facing banks at the global level.

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Albrahimi (2019) when the accounting estimate is used to anticipate the deterioration of
the loan in the future, fears are raised that the gains of the new expected credit loss model may be
overshadowed by losses, which weakens the transparency of banks in the market, and here appears
the ineffectiveness of credit risk management as a result of the increase in the percentage of
provisions for doubtful debts, in addition to the losses resulting from non-payment of these debts
affect the reserves and capital of the banks and their liquidity, which has a negative impact on the
profits of the banks and weakens the ability of the banks to meet their various obligations, which
may lead to the bankruptcy of the banks (Georgiou et al., 2021), and all customers will consider
their situation critical and thus many are formed of the unreal loan allocations, which result in the
formation of secret reserves, which weakens the efficiency of capital. This is the bleak perception
of the consequences of the Covid-19 pandemic on banks.
During of Covid-19 pandemic, as previously mentioned that the value of loan losses
increased, which is directly related to IFRS 9, which is concerned with loan loss provisions.
Albrahimi (2019) discussed the impact of IFRS 9 on the predictability of loan loss provisions and
the potential consequences on market discipline, and the relationship between recognized loan loss
provisions and the objective determinants of the actual loss model (i.e. changes in non-performing
loans and the level of non-performing loans) and the study concluded that the results empirical
evidence indicates a decrease in the correlation between loan loss provisions and the determinants
of the actual loss model, as a result of banks' tendency to manipulate their provisions regardless of
the actual default on loans.
Since the bank administrations in general do not find better than the provisions of loans in
the management of their profits (Krüger et al., 2018b). As a result of being subjected to pressure
from some shareholders, which systematically await the results of the activity, if the actual
performance rate of the bank does not live up to the ambitions of the shareholders in a way that
decreases the dividends, the management does not find it inevitable to modify the profit number,
by making the appropriate trade-off between the accounting profit and some of the variables
associated with it, which ultimately leads to the disclosure of unreal profits, and this manipulation
may be done by reducing the value of loan allocations, which are basically a burden on revenue,
so the value of profits rises to the level that satisfies the ambitions of shareholders and does not
expose the value of the establishment to decline in the business market, as a result of increasing
the value of the stock exchange, or increasing it to reduce taxes, and thus increase the provisions
of loan losses, which was demanded by the standard and pre-emptive, which as a result of the
Covid-19 pandemic many investors and borrower s have defaulted on their debts, which may
increase by the amount of provisions that will be formed for expected credit losses. Gomaa et al
(2019) pointed out that the increase in loan loss provisions, is the best indicator of the failure of
the bank due to the inclusion of reserves of loan losses in the bank's capital ratios, as an indicator
of banks' failures in the future. They seek to limit the growth of loan losses on their balance sheets
in order to maintain the minimum capital adequacy ratio required through the announced relief
package, as commercial banks are allowed to reduce loan loss provisions and not suspend
unrealized profit margin against restructured loans.
Banks have put in place several policies to deal with this epidemic. These policies include
lowering interest rates to support the momentum of economic recovery, increasing the intensity of
market interventions to stabilize the exchange rate, expanding instruments and transactions in the
money market to encourage foreign investors to hedge more against exchange rate risks, and
increasing the injection of liquidity into the money and banking market in order to encouraging
financing for the business world and the economy, and facilitating the return of macro prudential
policies to encourage banks to finance the business world and the economy with this policy, banks
and companies must also comply with government policies (Ariella, 2020).
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The role of the central bank as a lender, although it has a benefit in preventing banking and
financial panic, has a cost, as if the financial institution knew that the central bank would provide
it with reduced loans when it faced a problem, it would be willing to bear more losses, thus the
central bank's role as a lender and haven for banks may create an illegal or ethical risk problem,
especially for large commercial banks (Mechelli and Cimini, 2021). The self-interest of banks
requires following a policy of leniency with borrowers who suffer from problems in order to avoid
increasing their reserves from loan losses, as banks provide additional funds to troubled companies
and families, and continue to set a profit margin on outstanding loans in order to defer insolvency,
keep the loan regular, and the bank's balance sheet looks better. According to the standard, banks
need to ensure effective implementation of their plans to meet their capital requirements
(Prorokowski, 2018).
The use of several accounting methods can limit the impact of epidemics on corporate
financial reporting such as fair value accounting, income adjustment, loss avoidance, profit
management reduction, etc. Which enables us to say that accounting can play an important role in
mitigating the impact of the pandemic on the performance of banks and the efficiency of financial
statements.
By analyzing previous studies, we find that the reclassification of accounting information
under the adoption of international financial reporting standards and the impact of the
reclassification option of accounting information under these criteria on specific characteristics
results in useful information for capital markets, which contributes to improving the specific
characteristics of banks' financial statements. On the other hand, we find some negative aspects
that show that the standard has an impact with the information made available on the statement of
financial position, statement of changes in equity equity, and this has emerged before on the impact
on the adequacy of capital and allocations, which may lead to the formation of secret reserves for
the value of the endangered.
The debate over whether more or less information should be included in the financial
statements also depends on the conflicting objectives between accounting standard makers on the
one hand and banking institutions on the other, where professional institutions of accounting
standards setters aim to provide information to investors, which is consistent with the view of
investors wishing to maximize information, while on the other hand wanting the founders
bbanking is making more material gains. However, when dealing with recognition and
measurement, accountants tend to avoid adhering to the accounting standard if the resulting figures
do not reflect financial statements in order to restrict profit management, in accordance with the
hedging perspective (Bari and Mushajel, 2020). As banks seek to maintain sufficient capital to
absorb unexpected losses and sufficient loan loss allocations to cover all types of expected losses,
yet optimally loss allowances should converge loans from a hedging perspective on the balance
sheet, because this imposes lower costs than adjustment afterwards.
We also consider that the use of loan loss provisions as a equivalent of impairment is not
only inappropriate from an accounting perspective but also ineffective with regard to the bank's
safety when recording significant value loss allocations, particularly since the decline in net
income can affect dividend policy and risk exposure, and therefore accounting for loan losses will
have an impact on financial stability.

3. Research Methodology
The study population it was the European experts in financial reporting standards and financial
instruments at European banks, universities in five European countries (United Kingdom,
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Germany, France, Italy, and Switzerland) to learn about their experiences in that area. The
questionnaire was used as a tool for collecting data. The questionnaire was based on closed-ended
questions. This study based on the statistical program (SPSS) in conducting statistical analysis of
the study data, where the simple regression method was relied on to show the nature of the
relationship between the study variables, to test the hypotheses based on the relationship between
two variables only, with the aim of obtaining the determination coefficient "R2", which measures
the percentage of difference of the dependent variable and which is explained by the independent
variable, and the value of the coefficient of determination ranges between zero and one, and the
greater the value of the coefficient of determination, the stronger the correlation between the
dependent variable and independent variable, as the "alpha" coefficient was used to assess the
reliability or credibility of the measures used in the study and to measure the degree of consistency
of the measures based on the answers of the vocabulary of the sample, and the high coefficient of
"alpha" means that there is no bias or distortion in the results when analyzed. Table 1 shows the
sample construction, the number of questionnaires sent, the number of received and valid
responses.

Table 1. Questionnaires sent and received and valid responses

No. Questionnaires No. Questionnaires No. Valid responses
sent received (%) (%)
Academics 50 45 90%
Auditors 50 36 72%
Bankers 50 39 78%
Total 150 120 80%
Source: Author’s own
Based on the above, the total number of the valid responses 80%, and the academics in European
universities it was 90% the highest rate. This study uses descriptive and inferential statistics
(Simple regression model, correlations (r), variance, coefficients, and Cronbach’s alpha) to test the
hypotheses of study.

4. Discussion and Findings

Study variables and reliability assessment: We found that the values of the alpha coefficient ranged
between (65% - 80%), which means an acceptable increase in the reliability enjoyed by each
variable, as 50% represents the minimum acceptable limit for the "alpha" coefficient and the high
reliability rates reflect the degree of internal consistency between the contents of the variables, and
the possibility of their reliability, as we find that the independent variables represented in IFRS 9
(X1) amounted to 75%, the risks of Covid-19 pandemic (X2) amounted to 85%, and the dependent
variables represented in the quality of financial statements (Y1) amounted to 66%,.The risks of
banks (Y2) amounted to 80%, and the risks of banks during of Covid-19 pandemic (Y3) amounted
to 65%.
Test the first hypothesis: There is no statistically significant relationship between Covid-
19 pandemic and the increase in the risks to which banks are exposed, use the simple regression
coefficient to measure the relationship between the independent variable Corona pandemic "X2",
which symbolizes its terms by variables (X2.1 to X2.7) and the dependent variable risks to which
banks are exposed (Y2), which is expressed in variables (Y2.1 to Y2.6) and the following table
summarizes the results of the statistical analysis. Table 2. Shows the relationship between Covid-
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19 pandemic and the increased risks faced by banks:

Table 2. Covid-19 pandemic and the increased risks faced by banks

Independent Variable Beta T Sig
X2: The risks of Covid-19 0.957 19.20 0.000
pandemic
R = 0.9570
R2 = 0.870
F = 366.801
df = 1-119
Source: Author’s own
From the previous table it is clear that the explanatory strength of the model: The value of R =
0.9570 represents the coefficient of bilateral correlation between the two variables, which indicates
that the relationship between Covid-19 pandemic and the increase in the risks to which banks are
exposed, is a positive relationship in the sense that Covid-19 pandemic increases the risks to which
banks are exposed, as calculated the value of R2, which indicates the strength of the relationship
87%, which is a strong correlation relationship. The significance of the model is inferred by the
level of significant (F), which is equal to 0.000, which means that the error rate in accepting this
model is equal to zero, and this indicates that the regression model is statistically significant and
that Covid-19 pandemic contributes significantly to the risks to which banks are exposed, and this
is also evidenced by the increase in the calculated value of F is 366.801 from the tabular value of
F at degrees of freedom (1-119) and a significant level of 5%, which is equal to (3,90) as evidenced
by the level of significant which shows that the independent variable of Covid-19 pandemic is
meant to affect the risks to which banks are exposed, and this is also evidenced by the increase in
the calculated value of (T) of 19.20. Therefore the null hypothesis is rejected and accepted the
alternative hypothesis, which is "There is a statistically significant relationship between Covid-19
pandemic and the increase in risks to banks.”
Second hypothesis test: there is no statistically significant relationship between IFRS 9 and
the quality of banks' financial statements". The simple regression coefficient was used to measure
the relationship between the first independent variable IFRS 9 (X1), whose terms are denoted by
variables (X1.1 to X1.5), and the dependent variable is quality of financial statements (Y1), which
is expressed in variables (Y1.1 to Y1.6) and the following table summarizes the results of the
statistical analysis.
Table 3. IFRS 9 and the quality of financial statements
Independent Variable Beta T Sig
X1: IFRS 9 0.8187 28.659 0.000
R = 0.8187
R2 = 75%
F = 388,490
df = 1-119
Source: Author’s own
From the previous table it is clear that the explanatory strength of the model: the value of R =
0.8187 represents the coefficient of binary correlation between the two variables, which indicates
that the relationship between "IFRS 9 and the quality of the financial statements, is a positive
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relationship, as the value of R2 is calculated, which indicates the strength of the relationship 75%,
which is a strong correlation relationship. This indicates that the regression model is statistically
significant and that it contributes significantly to the impact on the quality of the financial
statements, as evidenced by the fact that the calculated value of F is 388,490 higher than the tabular
value of F at degrees of freedom (1-119) and a significant level of 5%, which is equal to (3,90) as
evidenced by the significant level (T), which shows that the independent variable is meant to affect
the quality of the financial statements, and this is also evidenced by the increase in the calculated
value of (T) of 28,659. Thus, the null hypothesis is rejected and accepted the alternative hypothesis.
Which is "There is a statistically significant relationship between IFRS 9 and the quality of banks'
financial statements.
Testing the third hypothesis: there is no statistically significant relationship between IFRS
9 and banking risks during of Covid-19 pandemic. The simple regression coefficient was used to
measure the relationship between the first independent variable IFRS 9 (X1), whose expressions
are symbolized by the variables (X1.1 to X1.5) and between the dependent variable “and the risks
of banks during of Covid-19 pandemic (Y3), which is expressed by the variables (Y3.1 to Y3.4),
and Table 4 summarizes the results of the statistical analysis.
Table 4. IFRS 9 and the quality of financial statements
Independent Variable Beta T Sig
X1: IFRS 9 0.673 54,498 0.000
R = 0.673
R2 = 65%
F = 1513.86
df = 1-119
Source: Author’s own
The explanatory strength of the model: the value of R = 0,673 represents the coefficient of binary
correlation between the two variables, which indicates that the relationship between "IFRS 9 and
the risk of banks under Covid-19 pandemic, is a positive relationship, as the value of R2, which
indicates the strength of the relationship is 65%, which is a strong correlation relationship. The
model is equal to zero and this indicates that the regression model is statistically significant and
that it contributes morally to the impact on bank risk under Covid-19 pandemic, as evidenced by
the increase in the value of F calculated 1513.86 from the value of the scheduled F at degrees of
freedom (1-119) and a significant level of 5% which is equal (3.92) as evidenced by the level of
morality (t) which shows that the independent variable is intended to affect the risks of banks under
Covid-19 pandemic, as evidenced by the value (T) calculated at 54,498 and therefore the null
hypothesis is rejected and accepted the alternative hypothesis, which is "there is a statistically
significant relationship between the IFRS 9and the risks of banks under Covid-19 pandemic.

5. Summary and Conclusion

As a result of the economic and ethical crises and their impact on the banking sector, the financial
services sector tended to pay attention to the areas of accounting disclosure in financial reports,
and to issue standards for increasing transparency in financial institutions, which would have an
impact on bank lending and capital distributions (Bert& Ben, 2019). Whereas, IFRS 9 appeared in
2008 as an alternative to IAS 39, which stipulates the use of the actual loss model to recognize
credit losses in profit and loss, and expected losses as a result of future events are not recognized.

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Therefore, the study attempted to analyze the standard, as it became clear that recognizing
provisions for losses expected to occur, not actual, leads to the inevitability of classification,
measurement and accounting evaluation of assets, liabilities and derivatives by forming
precautionary provisions for expected losses on all credit operations at their inception and during
their various stages of life, after studying a set of results likely to occur, taking into account the
time value of money, and based on reliable information with documentary support on current
conditions and economic events.
The standard achieves a set of advantages that appear in the transparency shown by the
expanded disclosure requirements related to the standard model, and thus enhance financial
stability (Albrahimi, 2019). The application of the standard also affects deposits by enhancing
depositors’ confidence in banks because it provides more guarantees and more protection, which
enables banking institutions to provide liquidity and fulfillment of their obligations when they are
due. It also contributes to promoting a sound study of the customer’s credit capabilities, and thus
represents a protection for banks from any risks related to borrowers’ non-fulfillment of their
financial obligations. The main advantages stem from the standard by comparing it with IAS 39,
which resolved a group of criticisms of the standard. IAS 39 in the context of financial stability,
where according to IAS 39 credit losses were recognized only as soon as they occur, as a result of
which economic problems appear late and suddenly, so IFRS 9 is designed to mitigate this problem
by applying a gradual approach, which gradually recognizes with expected credit losses, which
maintains financial stability, and creates positive effects on financial stability and banking
resilience (Moloney and Conac, 2020).
Despite all these advantages of the standard, the harmful effects of the COVID-19
pandemic on banks, which the study identified in three aspects, were represented in (company
value, capital adequacy, and interest income), as the results indicate that all banks are likely to
witness declining risk-weighted asset values, capital adequacy ratio, and interest income banks in
many countries have already begun to waive late payment fees and increase credit card limits, in
an effort to help their customers survive the pandemic, and for a reduction in weighted asset values
will lead to an increase in non-performing loans, which in turn leads to a decrease in capital
adequacy for banks, as capital adequacy is considered a protective barrier that prevents losses from
leaking into deposits. Some banks will remain under tremendous pressure to maintain the required
capital adequacy ratio due to the ongoing pandemic crisis (Sharif, 2020).
Which leads to an increase in the complexity of the liquidity problem when the percentage
of loans in the bank’s asset portfolio increases, and the most important problems left by Covid-19
pandemic on banks are increase the loan losses, as a result of low price levels, mass layoffs of
workers and job cuts, and borrowers from banks - individuals and companies facing risks high
default (Neisen and Schulte-Mattler, 2021).
The banking sector is witnessing an escalation in the risk of default on loans due to the low
income of borrowers as a result of the economic slowdown and forced closure (Bipasha &,
Suborna, 2020). Which forced us to link between IFRS 9, which is concerned with the formation
of provisions for future loan losses, and the increase in loan losses. Banks during of the pandemic,
where all clients consider their situation critical, and therefore many loan provisions are formed,
some of which may be considered unreal, so the increase in loan loss provisions, which was called
for by the standard in a proactive manner, which as a result of Covid-19 pandemic and the failure
of many investors and borrower s by fulfilling their debts, the amount of provisions that will be
formed for the expected debt losses may increase, which will result in the formation of secret
reserves that weaken the efficiency of capital. This is the bleak perception of Corona’s
consequences for banks, but it is clear that adherence to the standard may affect capital adequacy.
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AABFJ | Volume 17, No.4, 2023 Orbán & Tamimi: The Impact of IFRS 9 on Financial Reporting during Covid-19

As a result of the increase in allocations in times of crises, which was clearly evident in the
presence of Covid-19 pandemic.
Accounting also plays a major role in avoiding those errors by increasing the efficiency of
disclosures in financial reports, which play an important role in the stability of banks, and timely
disclosure can lead to discipline of banks and provide incentives for banks to take corrective action
early, which is consistent with IFRS 9 regarding future disclosures of losses (Krüger et al., 2018a;
Peterson, 2020). Finally, it was important to know the impact of all of the above on the efficiency
of financial statements, as an analysis of previous studies with regard to the efficiency of
information in financial statements found a positive aspect of the formation of an integrated
database that includes historical, current and future data related to customers, industry and
economic activities as a whole (el Barnoussi et al., 2020). The results of the study consistent with
him that the requirements of the standard help to form a clear and comprehensive picture of the
lenders and thus the ability to make good decisions.
Gornjak (2019) this researcher demonstrated the impact of the standard on the processing
of asymmetry information in the relationship between the bank and the borrower , the impact on
the quality of accounting in terms of the increase in reservation, both conditional and unconditional
as a result of the standard, as well as the impact on the efficiency of contracting and profit
management, and that the information received limits ethical risks with depositors, which is
consistent with (peterson, 2021) study of the role of the standard in reducing profit
management. This illustrates the impact of the standard on the creation of highly efficient financial
information that is reflected in financial statements, which are increasingly efficient due to
reservation factors and reduced profit management capacity, which was the main source of loan
allocations. It was also found through the analysis of the previous reviews that the reclassification
of accounting information under the adoption of international financial reporting standards and the
demonstration of the impact of the option of reclassification of accounting information under those
standards on the qualitative characteristics, results in useful information for capital markets, which
contributes to improving the qualitative characteristics of the financial statements of banks.
On the other hand, we find some negative aspects, which are clear that IFRS 9 has an impact
on statement of financial position and total equity, and this has already been shown to affect the
adequacy of capital and allocations that may lead to the formation of secret reserves (Hewa et al.,
2020). The results of this study consistent with the results and theoretical conclusions, as the null
hypothesis was rejected for the three hypotheses of the study and the alternative hypotheses were
accepted, which are: There is a statistically significant relationship between Covid-19 pandemic
and the increased risks to which banks are exposed. There is a statistically significant relationship
between IFRS 9 and the quality of the financial statements. There is a statistically significant
relationship between IFRS 9 and bank risks during of the Covid-19 pandemic.
Based on the above, the study recommends more research regarding Covid-19 pandemic,
especially as it is emerging on the global scene, to know its various effects, especially on the
accounting field, not only at the individual level, but attention should be at the academic level as
universities through scientific conferences, as well as on level of professional organizations.
Banking sector must also take into account this global development, and put in place appropriate
support factors that help support and stabilize the country's economic situation, which has been
greatly affected by the pandemic, not only the banking sector, but all sectors of the state to join
together to overcome the consequences of this devastating epidemic.

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Appendix (A)
5 Strongly Agree
4: Agree
3: Neutral
2: Disagree
1: Strongly Disagree

Risk associated with the Covid-19 pandemic (X2) 5 4 3 2 1

1. Closing parts of the economy to try to contain the virus.

2. The economic cost is huge, as a result of many losing their
jobs.
3. A major economic recession, falling asset prices, and an
uncertain financial forecasts.
4. Destroying trillions of dollars of stock exchange wealth,
5. The Covid-19 pandemic threatens the performance,
survival and growth of banks in European countries,
especially in countries where banks play a dominant role in
the economy.
6. Some business sectors have become indebted and unable
to pay the installments of their main loans, or their interests,
as a result of being affected by the Corona virus, as
companies’ revenues have stopped, which has affected the
realized profits, capital and ultimately the financial
adequacy.
7. The epidemic changed both sides of the equation, by
slowing a growth pattern credit where banks will not be
comfortable to lend at a time in the crisis, the demand for
credit will decrease when economic performance does not
appear as usual, and on the other hand, stable banking
systems are challenged due to the subsequent demand from
borrowers for banks to waive or lower the rate of loans.
Banking Risks (Y2) 5 4 3 2 1
1. During the global financial crisis, as banks practiced many
malpractices, which with time pushed financial institutions
towards insolvency, as it was found that banks regulatory
engage in accounting practices to facilitate income during
recession periods.
2. Low-liquid banks experienced inconsistent returns
naturally higher than the most liquid banks, which reflected
banks market expectations that low interest rates from it
would increase liquidity in the financial system, and thus
confirm the result is that interest rates policy has remained a
major policy tool at the beginning of the crisis
3. The lending policy is affected by the adequacy of the
capital it is considered a protective barrier that prevents
losses from leaking into deposits, the capital of the bank
exceeds the minimum sufficiency the more it increases its
ability to withstand losses and avoid financial crises.
Regulators around the world confirms on the idea that banks
must have large reserves in terms of capital and liquidity to
survive during a dramatic downturn, as some banks will
remain under tremendous pressure to maintain on the
required capital adequacy ratio due to the epidemic crisis
continuous.
4. Significant increase in systemic risk during a pandemic,
the increased vulnerabilities to systemic risk in the banking
system are attributed to three reasons, liquidity risk due to
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AABFJ | Volume 17, No.4, 2023 Orbán & Tamimi: The Impact of IFRS 9 on Financial Reporting during Covid-19

economic slowdown, financial stress, and reduced access to

capital markets due to possible credit rating downgrades.
5. The NPL situation worsens, and declines in all three
dimensions (company value, capital adequacy, and interest
income) more when the NPL rate increases, and the results
also show that increasing the NPL rate may force the capital
adequacy of all banks to reduce the limit Minimum
Requirements for Basel III.
6. Increased loan repayment losses.
IFRS 9 (X1) 5 4 3 2 1
1. Transparency shown by the expanded disclosure
requirements related to the standard model.
2. Strengthening financial stability, these are expected to
help transparency and disclosure to support reports and
disclosures the periodic combined control and the validity
and adequacy of the amounts reported expected losses.
3. The standard provides many valuable information for the
external user of the financial statements and many parties
other stakeholders, where this entry depends on present value
calculations for expected future cash flows obtained from the
borrower, if the loans are registered and potential credit
losses based on economic values no provision for losses will
be required loans and included in the budget, as the interest
rates In this case, the contracted party will cover all losses
expected over the life of the loan.
4. IFRS 9 avoids criticism of IAS 39 by presenting a simple
and comprehensive framework that clarifies requirements
for classification and measurement of financial instruments,
as well as options reduced based on the ability to hold assets
instead of Intent to retain individual origin, also helped to
take decisions by reversing the impact of risk management
activities on the financial statements.
5. IFRS 9 gradually recognizes expected credit losses, which
maintains financial stability, as it must be taken into account
IFRS 9 all relevant information, including historical data,
current conditions as well as supporting expectations for
future events and the economy aggregate, which creates
positive effects on financial stability and banking flexibility.
Quality of Financial Statements (Y1) 5 4 3 2 1
1. The credibility of the accounting information contained
therein, and the benefits it achieves for users.
2. It should be free from distortion and misleading, and
should be prepared in light of a set of legal, regulatory,
professional and technical standards in order to achieve the
purpose of its use.
3. The existence of an integrated database that includes
historical, current and future data related to customers, the
industry and economic activities as a whole.
4. Changes in the quality of accounting in terms of the
increase in reservation, both conditional and unconditional,
caused by standards, as well as the impact on the efficiency
of contracting and management profits, and provide
information on the risks on loans as a means of increasing
market discipline.
5. Processing asymmetry information in the relationship
between the bank and the borrower.
6. Re-classification of accounting information under the
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adoption of IFRS Standards and the impact of the

reinstatement option Classification of accounting
information under these standards on qualitative
characteristics, yielding useful information to the capital
markets and we contributed to the improvement of
qualitative characteristics of banks' financial statements.
Risks of Banks During of Covid-19 Pandemic (Y3) 5 4 3 2 1
1. Capital adequacy - banks are under tremendous pressure
to maintain on the capital adequacy ratio required due to the
epidemic crisis continuous.
2. The epidemic exacerbates the situation of non-performing
loans, and thus increases the rate of loan losses.
3. Low adherence to Basel III requirements, and also the
results show increasing the non-performing loan rate may
force the capital adequacy of all banks to reduce the limit
minimum requirements.
4. Formation of secret reserves as a result of rate increase
loss provisions.

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