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.
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:
Australian resource centre on the financial reporting impacts of coronavirus.
Reporting Updates are KPMG's way of communicating changes occurring within the Australian financial reporting environment to our clients.
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