The assessment of credit risk is usually an integral part of measuring expected credit losses (ECLs) under IFRS 9 Financial Instruments. Except for some trade and lease receivables, a company needs to assess at each reporting date whether the credit risk on a financial instrument has increased significantly since initial recognition. If it has, then ECLs are recognised over the expected life of the exposure; if it has not, then ECLs are limited to those over the next 12 months of the life of the exposure. A company also needs to assess whether an exposure is credit-impaired.
Companies are required to incorporate forward-looking information that is available without undue cost or effort into their assessment of whether credit risk on a financial instrument has increased significantly. This may be particularly challenging to do for the economic impact of COVID-19.
Actions for management:
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