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Financial instruments — Impairment

Background

This is a joint IASB-FASB project to consider how impairment of financial assets should be measured and recognised, and forms part of the IASB's comprehensive project on financial instruments.

Currently, IAS 39 Financial Instruments: Recognition and Measurement recognises impairment of financial assets using an 'incurred loss model'. An incurred loss model assumes that all loans will be repaid until evidence to the contrary (known as a loss or trigger event) is identified. Only at that point is the impaired loan (or portfolio of loans) written down to a lower value.

This project is considering various forms of the 'expected loss' approach, whereby expected losses are recognised throughout the life of a loan or other financial asset measured at amortised cost, not just after a loss event has been identified. Under the expected loss approach, losses are recognised earlier than the incurred loss model. Proponents of the expected loss model believe it better reflects the lending decision.

 

Current status of the project

The IASB published Exposure Draft ED/2013/3 Financial Instruments: Expected Credit Losses on 7 March 2013, with comments due by 5 July 2013.  Redeliberations are expected in the third quarter of 2013.

 

Project milestones

DateDevelopmentComments
18 June 2009 Request for Information on expected loss model published Comment deadline 1 September 2009
5 November 2009 Exposure Draft ED/2009/12 Financial Instruments: Amortised Cost and Impairment published Comment deadline 30 June 2010
November 2009 Expert Advisory Panel formed
31 January 2011 Supplement to ED/2009/12 Financial Instruments: Amortised Cost and Impairment published Comment deadline 1 April 2011
7 March 2013 Exposure Draft ED/2013/3 Financial Instruments: Expected Credit Losses published
 Comment deadline 5 July 2013

Related Discussions

  • Update from the IASB

  • Apr 11, 2013

  • A report was given by Chairman Hans Hoogervorst on the Accounting Standards Advisory Forum, the Effects Analysis working group, and updates on current projects.

  • Impairment

  • Apr 09, 2013

  • The ASAF was presented with a high-level summary by the IASB and FASB staff of their respective Impairment proposals.

  • Insurance contracts

  • Dec 14, 2012

  • The Board discussed and decided on the residual margin measurement of insurance contracts and the impairment of reinsurance contracts in the financial statements.

  • Financial instruments — Impairment (IASB only)

  • Dec 14, 2012

  • The Board continued discussion of its proposed ‘three-bucket’ impairment model in discussing the following topics: 1) Transitional requirements; 2) Due process considerations; and 3) Re-exposure, comment period and permission to draft.

  • Impairment (IASB only)

  • Nov 21, 2012

  • Following from the earlier education session, the IASB held a decision making session to discuss: (1) criteria for recognition of lifetime expected losses (2) methods and information to assess expected losses and transfer criteria (3) Disclosures applicable to entities applying the simplified approach for trade and lease receivables.

  • Impairment — Education session (IASB only)

  • Nov 19, 2012

  • The Board held an education session discussing criteria for recognition of lifetime expected losses; methods and information to assess expected losses and transfer criteria; and disclosures applicable to entities applying the simplified approach for trade and lease receivables.

  • Financial Instruments: Impairments

  • Jul 20, 2012

  • The Board discussed the presentation of interest revenue, the application of the proposed expected loss model to assets reclassified from FVTPL, disclosures specific to IFRSs and transition.

  • Financial instruments – Impairment

  • May 21, 2012

  • The IASB and FASB discussed whether an entity should apply the proposed “three-bucket” expected-loss impairment approach to lease receivables, including those recognised under (1) the proposed receivable and residual leases model and (2) existing lease standards

  • Financial instruments — Impairment

  • Feb 28, 2012

  • The IASB and FASB continued their discussions on development of the three bucket impairment model for financial instruments, discussing: (1) direction of movements between impairment buckets (2) application of the impairment model to trade receivables.

  • Financial instruments — Impairment

  • Jan 27, 2012

  • The IASB and FASB continued their discussions on the development of the three bucket impairment model, including the following topics: (1) application of the general impairment model to financial assets with an explicit expectation of losses at acquisition (2) scope (3) changes in expectations subsequent to acquisition (4) presentation of purchased financial assets with an explicit expectation of losses.

  • Financial instruments — Impairment

  • Dec 15, 2011

  • The Boards' discussions around development of the three bucket approach have to date focused around commercial loans. However, constituents had raised concerns in the supplementary document and during outreach activities over the application to individual debt securities. The Boards took this opportunity to discuss specific application issues associated with debt securities, commercial loans, and consumer loans.

  • Financial instruments — Impairment

  • Dec 14, 2011

  • The IASB and FASB discussed a variety of topics in the continued development of the three bucket impairment model: (1) principle of transfer from bucket one to bucket two (2) the objective of the bucket one allowance and the measurement attribute for financial assets in the bucket (3) two pervasive issues: (a) aggregation of individual financial assets for collective credit deterioration evaluation (b) differentiation between bucket two and bucket three.

  • Financial instruments – Impairment

  • Oct 20, 2011

  • The IASB and FASB concluded that the staffs should develop (1) an impairment model using a relative credit risk approach, (2) potential triggers, indicators, or thresholds used to transfer assets out of Bucket 1 into Bucket 2, and (3) disclosures to provide transparency around an entity's credit risk management and application of the impairment model.

  • Financial instruments – Impairment

  • Sep 21, 2011

  • The IASB and FASB discussed (1) feedback from the Impairment Summit and Financial Instruments Working Group (2) how to treat originated or purchased assets of lower credit quality on initial recognition and (3) the development of a principle of when to transfer financial assets between bucket one and bucket two

  • Financial instruments – Impairment

  • Jul 20, 2011

  • The IASB and FASB discussed criteria on how and when assets should be transferred from one 'bucket' to the next under the 'three bucket' approach to impairment, and also the measurement of items in 'bucket one'.

  • Financial instruments – Impairment

  • Jun 15, 2011

  • The IASB and FASB considered a high level summary of the approach developed by the Impairment working group, based on three categories using credit risk or credit deterioration as the distinguishing feature between the categories.

  • IASB-EFRAG meeting

  • Jun 14, 2011

  • Multiple Board members of the IASB, its staff and the incoming vice-chairman of the IASB met with members of the European Financial Reporting Advisory Group (EFRAG) to discuss (1) the state of the major projects (2) new standards on consolidation, joint arrangements and disclosures (3) the timeline for completion of major projects.

  • Financial instruments – Impairment

  • May 18, 2011

  • The Boards discussed a plan forward for the impairment project based on the inconsistent feedback received from comment letter respondents and outreach activities to the Board's proposals as contained in the Supplementary Document

All Related