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 expects to issue a revised exposure draft during the second half of 2012.

 

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

Related Discussions

  • 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

  • Financial instruments – Impairment

  • Apr 14, 2011

  • The IASB and FASB discussed (1) fundamental differences in the definition of amortised cost under IFRSs and US GAAP (2) whether expected losses should be discounted or undiscounted.

  • Financial instruments – Impairment

  • Apr 13, 2011

  • The IASB and FASB received a summary of the views received during outreach activities as well as an initial summary of the comment letters received on the joint supplementary document on impairment.

  • Financial instruments – Impairment

  • Mar 29, 2011

  • The IASB and FASB continued their discussions from the 22 March 2011 joint meeting in Norwalk on the accounting for purchased debt instruments subject to impairment accounting.

  • Financial instruments – Impairment

  • Mar 22, 2011

  • The IASB and FASB discussed two alternative measures that entities could use when estimating expected credit losses and impairment accounting for purchased loans.

  • Financial instruments – Impairment — Disclosures

  • Feb 15, 2011

  • The IASB discussed some of the disclosures included in the original exposure draft, including the stress testing requirement and disclosures on the credit quality of financial assets and vintage information.

  • Financial instruments – Impairment - comment period

  • Jan 18, 2011

  • The Boards agreed to a 60 day comment period for supplementary exposure draft expected to be issued at the end of January, and considered other outreach activities planned during the comment period.

  • Financial instruments - Impairment

  • Dec 17, 2010

  • The IASB (1) confirmed its decisions from the special meeting held on 1 December 2010 (2) considered whether to include a question on loan commitments and guarantees in the forthcoming supplement (3) considered presentation and disclosures.

  • Financial instruments - Impairment

  • Dec 16, 2010

  • The IASB and FASB considered the results of the outreach on possible model choices and the forward looking plan for the exposure draft.

  • Financial instruments – Impairment

  • Dec 08, 2010

  • The IASB and FASB continued their discussions on the recognition of expected credit losses for financial instruments, considering the three impairment models agreed at the 17 November 2010 meeting, and two variations of those models.

  • Financial instruments – Impairment

  • Dec 01, 2010

  • The IASB and FASB discussed four topics related to the amortised cost and impairment project: (1) whether to provide an exemption for short-term trade receivables (2) whether in the forthcoming ED to solely address application of the proposals to open portfolios or to also consider the individual instruments (3) how expected losses should be allocated and (4) consideration of a good book/bad book approach.

  • Financial instruments – Impairment

  • Nov 17, 2010

  • The IASB and FASB continued there discussions on credit impairment, receiving a presentation on loan loss data and a high-level overview of the impairment models (7 in total) discussed previously.

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