Although the focus for IFRS 9 Financial Instruments is on financial institutions such as banks and insurance companies, ‘normal’ operating entities are also affected by IFRS 9. Maybe their investment and loan portfolios are less complex but in operating a business and as part of the internal credit risk management practice policy making it is still important to implement the impairment model under IFRS 9 Financial Instruments.
Take the following steps to administrate your policy for accounting for impairments of financial assets.
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Step 1 Define Default, Step 2 Decide to use the general or simplified approach, Step 3 Define significant increase in credit risk, Step 4 Define low credit risk, Step 5 Allocate receivables to high and low credit risk, Step 6 Apply the provision matrix, Step 7 Measure expected credit losses