Despite some interconnectedness, there remain major differences. Both frameworks have separate definitions of fair value, expected losses and offsetting amongst others. Consequently, an entity should be able to understand and reconcile these differences.
The two separate worlds of risk and finance, and their frameworks, have much in common; despite being written to achieve different objectives, they often work in a complementary manner.
After the global financial crisis a number of convergence projects were set out between US standards body, the Financial Accounting Standards Body (FASB), which is responsible for US Generally Accepted Accounting Principles (GAAP), and the International Accounting Standards Board. However many projects were delayed and after the last International Accounting Standards Board (IASB) Exposure Draft, the two sets of rules were not completely aligned.
Using an expected loss model was the obvious way forward, as it had already been agreed upon by the IASB and FASB. This opened a potential bridge with risk management measurements.
These questions will be addressed within this paper.
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