Modifications and Write-offs


If the contractual cash flows of a financial asset are modified or renegotiated in such a way that does not result in derecognition of that financial asset under IFRS 9 Financial Instruments, entities should recalculate the gross carrying amount of the financial asset on the basis of the renegotiated or modified contractual cash flows. A modification gain or loss would be recognised in profit or loss.

An entity would also be required to consider whether the modification (renegotiation) provides evidence that there may have been a significant increase in credit risk. It is necessary to compare:

  • The credit risk at the reporting date (based on the modified contractual terms), and
  • The credit risk at initial recognition (based on the original, unmodified contractual terms).

If there has been a significant increase in credit risk, the modified financial instrument would be in Stage 2, and lifetime expected credit losses would be required to be recognised.

If subsequently, credit risk is considered to have decreased after the modification e.g. the customer has demonstrated consistent good payment behavior over a period of time then the modified financial instrument might move back to Stage 1.


When the entity has no reasonable expectations of recovery, a write-off event occurs. A write-off constitutes a derecognition event (either in full or in part). Therefore the gross carrying amount of a financial asset is reduced by the amount of the write-off that has been recognised in profit or loss.


An entity plans to enforce the collateral on a financial asset and expects to recover no more than 30%. If the entity has no reasonable prospects of recovering any further cash flows from the financial asset, it writes off the remaining 70% of the financial asset.

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