Auditor expectations for IFRS 9 in Bangladesh

The implementation of IFRS 9 in Bangladesh represents more than an accounting change—it is a transformation of risk culture. For 2026, the Financial Reporting Council (FRC) and Bangladesh Bank have signaled that “approximate calculations” are no longer sufficient. Auditors are now focusing on four critical pillars of compliance.

1. The Validity of the Three-Stage Model

Auditors expect banks to demonstrate a sophisticated “Three-Stage” impairment model that differentiates assets based on credit risk volatility.

Stage 1:

Assets with no significant increase in credit risk since inception require a 12-month ECL.

Stage 2:

Assets showing a Significant Increase in Credit Risk (SICR) move here, requiring a Lifetime ECL. Auditors will look for objective “triggers” (e.g., 30 days past due or qualitative factors) that move an asset to this stage.

Stage 3:

Credit-impaired assets (defaults) require Lifetime ECL calculation with interest recognized on the net carrying amount.

2. Data Integrity and “Audit Trails”

A major challenge in Bangladesh has been the lack of historical data. In 2026, auditors expect:

Historical Depth:

Evidence of data collection dating back to January 2022, as mandated by BRPD Circular No. 03 (2025).

Automation over Manual Entry:

Auditors are increasingly skeptical of Excel-based models. They expect automated ECL engines integrated with the Core Banking System (CBS) to prevent human bias or “earning smoothing.”

3. Incorporation of Forward-Looking Information (FLI)

Under IFRS 9, provisions must account for future economic shifts. Auditors expect banks to justify their provisions using:

Macroeconomic Correlates:

Statistical proof that factors like GDP growth, inflation, and exchange rate volatility directly impact the bank’s default rates.

Probability-Weighted Scenarios:

At a minimum, banks must present three scenarios: Base Case, Upside (Optimistic), and Downside (Pessimistic).

4. Governance and Management Overlays

While IFRS 9 allows for “Management Overlays” (manual adjustments for unique risks), auditors will treat these as high-risk areas.

Documentation:

Every adjustment must be backed by a written rationale approved by the Board Risk Management Committee.

Model Validation:

Auditors expect to see reports from an independent internal or external party validating the ECL model’s logic and performance.

Summary of Auditor Focus Areas

Focus Area	Key Auditor Question
SICR Criteria	“How did you decide this loan hasn’t significantly increased in risk?”
Data Quality	“Can you trace this PD (Probability of Default) back to raw 2022 data?”
Economic Shifts	“How would a 2% rise in inflation change your provision levels?”
Governance	“Did the Board review the impact of IFRS 9 on capital adequacy?”

Conclusion

By June 2026, banks must have completed pilot implementation in branches covering at least 25% to 50% of their total loan portfolio. Auditors will use these pilot results as a “litmus test” for the bank’s readiness for full implementation in 2027.

The 2026 audit cycle will clearly distinguish between institutions that prepared early and those that relied on legacy assumptions.

Fineit partners with banks in Bangladesh to build regulator-ready IFRS 9 frameworks — combining advancedECL modeling, macroeconomic scenario design, governance structuring, and independent validation.

If your pilot implementation is underway, this is the time to benchmark, stress test, and strengthen your model architecture.