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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 a comment deadline of 5 July 2013.  A finalised IFRS (additional chapter of IFRS 9 Financial Instruments) is expected in the third quarter of 2014.

 

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