This IFRS newsletter reports on the latest discussions on impairment of financial assets.
The new expected credit loss model for the impairment of financial instruments has triggered a variety of implementation issues.
At its third substantive meeting – in December 2015 – the IFRS Transition Resource Group for Impairment of Financial Instruments (the ITG) discussed a number of issues that were submitted by stakeholders.
For more detail on the ITG’s discussions, read Issue 3 of our IFRS Newsletter: IFRS 9 Impairment.
ITG members provided useful clarification on a number of challenging practical issues. Some of the main points on which ITG members appeared to agree were as follows.
|Incorporation of forward-looking scenarios||The objective of IFRS 9 Financial Instruments is to achieve an unbiased and probability-weighted estimate of expected credit losses (ECLs). Therefore, when incorporating forward-looking scenarios, an entity should consider the range and probabilities of different outcomes.|
|Scope of paragraph 5.5.20 of IFRS 9||The Chair emphasised that the exception in paragraph 5.5.20 of IFRS 9 was meant for a narrow set of circumstances. It is relevant where there is an inter-relationship between the drawn and undrawn amounts that are not distinguished for risk management purposes.|
|Measurement of ECLs for charge cards||A charge card agreement might include no commitment to extend further credit.|
|Period over which to measure ECLs for revolving credit facilities||When determining the period over which an entity is expected to be exposed to credit risk (when applying paragraph 5.5.20), an entity should consider the credit risk management actions that management expects to carry out and that serve to mitigate ECLs.|
|Inclusion of cash flows expected from sale of a defaulted loan in the measurement of ECLs||An entity may include cash flows expected from the sale of a defaulted loan in measuring ECLs.|
For each issue submitted, the IASB will consider what action – if any – is required.
Currently, no further physical ITG meetings are scheduled. However, the Chair indicated that the ITG will continue to exist, and should stand ready in case any subsequent issues for discussion emerge.
The Chair said that stakeholders could continue to submit questions, and that a decision would then be taken on next steps. One potential outcome would be the publication of educational material.
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The purpose of the ITG is to:
The ITG does not have standard-setting authority, and its purpose is to advise the IASB.
ITG members include representatives from banks and audit firms. Certain IASB Board members and representatives from the Basel Committee and from the International Organization of Securities Commissions (IOSCO) are also observers at the meetings.
The meetings are chaired by an IASB Board member. The ITG’s agenda papers, prepared by the IASB staff, are publicly available and all meetings are held in public. Minutes of the meeting will also be made publicly available.
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