Australia's banks and similar institutions have been given the prudential regulator's rulebook on how to apply a contentious new accounting standard that brings capital losses forward in financial statements.A letter from the Australian Prudential Regulatory Authority sent to Australia's biggest financial services players states that Australia's prudential standards will completely align with the new financial instruments standard AASB 9 over time.APRA has told the banks and other entities the approach it is expecting to see in their paperwork related to credit losses. APRA is expecting that the three stage credit loss recognition processes required under the new accounting standards will take the following form in the regulatory lodgements of deposit takers: stage 1 (representing 12 months ECL provisions on performing loans): allocate to General Reserve for Credit Losses (GRCL) if held against future, presently unidentified losses and therefore freely available to meet losses that subsequently materialise; stage 2 (representing lifetime ECL provisions on under-performing loans): considered specific provisions for regulatory purposes. However, any portion that represents an amount for future, presently unidentified losses would qualify as GRCL; stage 3 (representing lifetime ECL provisions on non-performing loans): considered specific provisions for regulatory purposes.The letter to the banks was released by APRA less than six months from the official implementation date of the standard. AASB 9 becomes effective for financial years beginning on or after 1 January 2018 and most of Australia's large banks have put in place implementation projects to ensure they comply in time with the new rules. While AASB 9 poses number crunching challenges for the banks in its own right, the financial services sector must at the same time implement a new leasing standard that brings new assets and liabilities on the balance, and a revenue standard that will change the timing of revenue recognition.New rules in AASB 9 related to accounting for expected credit losses were developed by the International Accounting Standards Board as a response to criticisms of the accounting standards in place at the time of the global financial crisis. One major debating point was that expected losses were being accounted for too late and, as such, the financial statements of companies during the global financial crisis were not reflecting the impact of credit losses appropriately.The Basel Committee also expressed its support on the change in accounting for ECL in a circular issued in March 2017, while warning that some jurisdictions would find the transition between one form of regulatory compliance to another challenging. The circular on the application of IFRS 9, which is the equivalent of AASB 9 internationally, is not the only document issued on the way in which expected capital losses are accounted for by banks and similar institutions. A discussion paper issued in October 2016 looked at long term regulatory impact arising from the changes in accounting for ECL."The Committee also recognises that the new accounting provisioning models introduce fundamental changes to banks' provisioning practices in qualitative and quantitative ways. Significantly higher provisions are possible with the lifetime loss concept