The best 1 in overview – IFRS 9 Impairment requirements

IFRS 9 Impairment requirements

forward-looking information to recognise expected credit losses for all debt-type financial assets

 

Under IFRS 9 Impairment requirements, recognition of impairment no longer depends on a reporting entity first identifying a credit loss event.

IFRS 9 instead uses more forward-looking information to recognise expected credit losses for all debt-type financial assets that are not measured at fair value through profit or loss.

IFRS 9 requires an entity to recognise a loss allowance for expected credit losses on:

  • debt instruments measured at amortised cost
  • debt instruments measured at fair value through other comprehensive income
  • lease receivables
  • contract assets (as defined in IFRS 15 ‘Revenue from Contracts with Customers’)
  • loan commitments that are not measured at fair value through profit or loss
  • financial guarantee contracts (except those accounted for as insurance contracts).

IFRS 9 requires an expected loss allowance to be estimated for each of these types of asset or exposure. However, the Standard specifies three different approaches depending on the type of asset or exposure:

IFRS 9 Impairment requirements

* optional application to trade receivables and contract assets with a significant financing component, and to lease receivables

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Simplified approach Lifetime expected credit losses

IFRS 9 has also made it possible to use a Simplified approach Lifetime expected credit losses for trade receivables, contract assets and lease receivables.

Interest-free term loan No bank debt

Interest-free term loan No bank debt is a case covering several interesting accounting issues under IFRS 9:

  • Initial recognition, recalculating interest-free to an imputed effective interest and classification of capital contribution,
  • Classification of the loan as at amortised costs (business model test and SPPI test),
  • Impairment triggering Interest-free term loan No bank debt
  • Credit stage assessment (Stage 1, Stage 2 or Stage 3)
  • Default assessment Interest-free term loan No bank debt

THE CASE

Parent A advances an unsecured loan for €1m to Subsidiary B on 1 January 2018 with the following terms:

  • 0% interest (assume that a market rate of interest for a similar loan is estimated at 7%);
  • €1m repayable in 5 years – December
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Introduction IFRS 17 Insurance contracts

Introduction IFRS 17 Insurance contracts – More than 20 years in development, IFRS 17 represents a complete overhaul of accounting for insurance contracts. The new standard applies a current value approach to measuring insurance contracts and recognises profit as insurers provide services and are released from risk. Introduction IFRS 17 Insurance contracts

The profit or loss earned from underwriting activities are reported separately from financing activities. Detailed note disclosures explain how items like new business issued, experience in the year, cash receipts and payments, and changes in assumptions affected the performance and the carrying amount of insurance contracts. Introduction IFRS 17 Insurance contracts

IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued, reinsurance contracts Read more