PROFESSIONAL JUDGEMENT IN THE ASSESSMENT AND ACCOUNTING OF BANKS’ CREDIT OPERATIONS

Abstract

Introduction. Credit operations represent one of the principal areas of activity of banking institutions and occupy a significant place in the structure of their assets. They contribute substantially to the generation of banks’ income, while at the same time being associated with the risk of borrowers’ default. The accounting treatment of such operations requires the use of accounting estimates, forward-looking assumptions and analytical procedures. Under these conditions, professional judgement plays an important role in decision-making concerning the recognition, measurement and presentation of credit operations within the bank’s accounting system.

Purpose. The purpose of the study is to determine the role of the accountant’s professional judgement in the accounting treatment of banks’ credit operations in the context of the application of IFRS 9 Financial Instruments.

Materials and methods. The informational basis of the research includes International Financial Reporting Standards, analytical materials of the National Bank of Ukraine, as well as scientific publications by domestic and foreign scholars addressing issues related to the accounting of financial instruments and the assessment of credit risk. The study employs the methods of analysis and generalisation to examine academic approaches to the interpretation of professional judgement. The graphical method is used to present research results visually, in particular to illustrate the dynamics of credit risk indicators in the banking system of Ukraine and to visualise the algorithm for applying professional judgement and the structure for identifying accounting decisions in the process of accounting for banks’ credit operations. The comparative method is applied to contrast approaches to the measurement of credit losses under different accounting standards. The method of systematisation is used to organise the stages of accounting for credit operations, while the structural and logical method enables the development of an algorithm for the application of professional judgement and the identification of the sequence of accounting decisions in banking practice.

Results. The article summarises academic approaches to understanding professional judgement in accounting and clarifies its content in the context of accounting for banks’ credit operations. It is substantiated that the application of professional judgement is necessary at various stages of the accounting process, including the identification of the economic substance of credit transactions, the classification of financial assets, the assessment of borrowers’ credit risk, the determination of the stage of impairment of credit assets, and the calculation of expected credit losses. An algorithm for applying professional judgement in the assessment of banks’ credit operations is developed, reflecting the sequence of accounting decisions within the expected credit loss model. In addition, a structure for identifying accounting decisions in the process of accounting for credit operations is proposed, which allows the determination of stages in the accounting process where the use of professional judgement is essential for ensuring the reliability of accounting estimates and the transparency of banks’ financial reporting.

Discussion. Further research will focus on improving methodological approaches to the application of professional judgement in the assessment of credit risk and in determining allowances for expected credit losses in banking institutions.