the Expected Credit Losses model

Setting the scene the Expected Credit Losses model, start here to get a good understanding of ECL loss allowances or continue, you decide……

The Expected Credit Losses model (ECL) should be applied to:

• investments in debt instruments measured at amortized cost;
• investments in debt instruments measured at fair value through other comprehensive income (FVOCI);
• all loan commitments not measured at fair value through profit or loss;
• financial guarantee contracts to which IFRS 9 is applied and that are not accounted for at fair value through profit or loss; and
• lease receivables that are within the scope of IFRS 16 Leases, and trade receivables or contract assets within the scope of IFRS 15

Impairment of investments and loans

is about impairment in a ‘normal’ business not complicated accounting but straightforward accounting calculations.

Normal operations

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.

The objective of these approaches to expected credit losses or timely recording of impairments/loss allowances is to provide approaches that result in a situation in which very different reporting entities all … Read more

Curing of a credit-impaired financial asset presents the explanation of what a credit-impaired financial asset is, how to account for a credit-impaired asset as long as it is credit-impaired and how to account for a credit-impaired asset that is no longer credit-impaired (i.e. curing of a credit-impaired financial asset which means the borrower has, for example, restructured its business and cash flow recovered sufficiently to return paying all interest and principal as per the original contract). Curing of a credit-impaired financial asset

Credit-impaired assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable … Read more

Summary impairment of financial assets is the centre text to quickly understand all IFRS aspects to recording loss allowances, when, how much, how often?

Impairment requirements

The impairment requirements are applied to: Summary impairment of financial assets

• Financial assets measured at amortised cost (originated, purchased, reclassified or modified debt instruments incl. trade receivables),
• Financial assets measured at fair value through other comprehensive income,
• Loan commitments except those measured at fair value through profit or loss,
• Financial guarantees contracts except those measured at fair value through profit or loss,
• Lease receivables.

Impairment model

The impairment model follows a three-stage approach based on changes in expected credit losses of a financial instrument that determine:

• The recognition of impairment, and Summary impairment of

Property development intercompany finances Interest bearing term loan

Senior interest-bearing bank term debt

THE CASE

Parent C operates in the UK real estate sector and purchases land for development into residential units for public sale. Each potential development proposal is supported by a detailed business case which includes a due diligence report in respect of the expected Gross Development Costs (GDC) as well as an independent third party valuation of the Gross Development Value (GDV) of the completed site both of which are undertaken in order to secure bank financing. Management assesses each proposal in accordance with a number of key investment criteria, including for example, the minimum yield required on each development.

Once the proposal has been approved by … Read more