The Impact of Applying the Standards of Financial Reports on the Predictive Ability of Loans Losses Provisions For the Purpose of Improving Quality of Financial Reports and Financial Performance

In fact, the delayed recognition of debts losses has come up with a series of financial crises that have occurred to several companies, being accompanied with financial collapses in multiple states. In 2008, the world has witnessed a global financial crisis that has affected economics of most of the world states. This has occurred because of delay in recognition of the debt losses, and which has necessitated and enforced the authorities in charge of setting standards to issue several accounting standardizations. The Basel Committee on Banking Supervision has also issued Basel 3 to reduce the negative effects of any financial crisis, which focuses mainly on increasing the reserve ratio to meet loan losses. The International Accounting Standards Board (IASB) has issued a financial instruments standard, namely, the International Financial Reporting Standard 9 (IFRS9), according to which, a model for recognizing debt losses has been presented to measure the expected loss, and obligates banks to recognize loan loss provisions, which has an impact on the quality of accounting information. As before the issuance of the standard, the provisions' account has been based on historical data in a way that helps corporates and bank officials to manage profits by increasing the percentage of the provisions, and thus reducing or increasing profits. By the application of the standard, it has been found that it affects the predictive ability of loan loss provisions (LLP), which leads to an accounting shift in the recognition and measurement of credit losses, and thus influence the predictive power of loan loss provisions. The financial statements are considered as a main tool to meet the needs of stakeholders of accounting information and those who rely on this information in making decisions that achieve their interests. For information to be useful, it should satisfy the qualitative characteristics, which are applied to the loan loss provisions model.
The significance of this research is reflected in the importance of identifying the effect of applying the International Financial Reporting Standards and the National Accounting Principles on the model of loan losses provisions, identifying as well, the impact of this model on the quality of financial reports, limiting profit management and assisting the management in recognizing the amount of expected loss, and thus, determining provisions facing this loss in order to avoid that has occurred in the past in some states, as the proportion of provisions for credit losses has increased, and thus profits are reduced.