20RU-014 COVID-19 – How expected is that ECL?

20RU-014 COVID-19 – How expected is that ECL?

The effects of COVID-19 on the impairment of assets, including financial assets will be significant. Entities are now starting to consider how to calculation the provision for doubtful debts at this year-end and estimating expected credit losses (ECLs) in this current environment of high volatility and uncertainty requires signficant judgement. These frequently asked questions can act as a guide on how organisations could approach the challenged inherent in ECL estimation during this time of uncertainty.


COVID-19 and ECLs – the uncertainty of it all

The spread of COVID-19 has seen an unprecedented response by governments, regulators and numerous industry sectors in Australia and around the world. The Australian response to this pandemic has seen the closure of our international and state borders, significant restrictions on corporate Australia’s ability to operate, volatility and instability in financial markets and significant slowdown and uncertainties in the Australian and global economies.

Impairment of assets, including financial assets, is a key area of focus for entities, stakeholders and regulators alike. The effects of COVID-19 will impact the assumptions about the collectability of the financial assets and hence the expected credit loss (ECLs). While ECLs are generally expected to increase for many organisations, by how much will depend on the specific facts and circumstances of the entity, and significant judgement is required. Organisations consider economists’ recovery forecasts of different industries, the various government stimulus packages and the organisation’s own responses to determine the various possible future scenarios which will form the basis of their assumptions in their estimation of ECL.

This Reporting Update includes a series of frequently asked questions as a guide on how organisations could approach the challenges inherent in ECL estimation during this time of uncertainty. These FAQs include:


  • Which assets must use the ECL approach to estimate recoverable amount?

Assessing the impact of COVID-19

  • How does COVID-19 impact the use of historical data to estimate ECLs?
  • What is the impact of COVID-19 on an organisation that has never recognised ECLs?
  • What are examples of indicators that the collectability of receivables has deteriorated?
  • What are some indicators that the recoverability of trade receivables may not have deteriorated as expected?

Impact on provisioning methodology

  • How will COVID-19 impact the segmentation of an organisation’s receivables portfolio?
  • What are examples of when receivables are assessed on an individual basis?
  • How will COVID-19 impact an organisation’s write-off policy for receivables?
  • What are some of the economic factors that may impact the estimation of ECL?
  • What is the implication about the collectability of receivables if customers are on payment holidays?
  • How does COVID-19 impact the assessment of a significant increase in credit risk (SICR) for receivables with a repayment term of more than 12 months?
  • What are the different methods to recognise the impact of COVID-19 on ECL?
  • Are ECLs updated for events which occur post reporting date?


  • Are organisations expected to disclose estimates and judgements that form the basis of the measurement of expected credit losses?

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