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IFRS 9 — Credit enhancement in the measurement of expected credit losses

Date recorded:

Credit enhancement in the measurement of expected credit losses (Agenda Paper 12)


In November 2018 the Committee discussed whether the cash flows expected from a financial guarantee contract or any other credit enhancement that is integral to the contractual terms of a loan can be included in the measurement of expected credit losses (ECL) if the credit enhancement would otherwise be required to be separately recognised. At the end of the meeting the Committee concluded publishing a tentative agenda decision analysing the requirement of IFRS 9:B5.5.55 and concluding that if a credit enhancement is required to be recognised separately by IFRS Standards, an entity cannot include the cash flows expected from it in the measurement of ECL, even if the credit enhancement is judged to be integral to the contractual terms of the loan.

Comment letters were received and most respondents agreed with the analysis while one respondent was concerned about when an entity would separately recognise a credit enhancement.

Staff analysis

The staff is of the view that the respondent's concern is not the subject matter of the submission and therefore would not be addressing this separate issue.

Staff recommendation

The staff recommend finalising the tentative agenda decision with no changes.


All Committee members were supportive of the Agenda Decision. The Committee decided, by a majority of votes, to publish the Agenda Decision with no changes.

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