European field-test on the IASB's expected credit losses model for financial instruments

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

12 Apr, 2013

On 7 March 2013, the International Accounting Standards Board (IASB) published its long-awaited proposal for a new accounting model for impairments of financial assets. Today, EFRAG and the National Standard Setters of France, Germany, Italy and the United Kingdom have launched a field-test designed to show whether the proposed new model addresses the weaknesses of the old model, whether the new model is operational and what costs and impacts will come with the new model.

Exposure Draft ED/2013/3 Financial Instruments: Expected Credit Losses proposes a model according to which credit losses are no longer recognised if incurred; rather, entities would recognise expected credit losses on financial assets and on commitments to extend credit based upon current estimates of expected shortfalls in contractual cash flows as at the reporting date.

The field-test launched today is designed to shed light on the following aspects of the proposed new model:

  • How does the expected credit losses model reflect the amount, timing and uncertainty of future cash flows?
  • Are the requirements clear and operational?
  • What is the impact of the proposed expected credit losses model?
  • What are costs and benefits of the proposed expected credit losses model?

The field-test is conducted through a questionnaire developed by EFRAG and National Standard Setters. In addition European workshops will be held for participants by industry, in which IASB staff will participate. These will be held during May and June 2013. Participation to the workshops will be limited to the respondents of the questionnaire. The workshops will be based on written case studies provided by respondents.

EFRAG and the National Standard Setters encourage all entities that believe they are significantly impacted by the proposals to participate in the field-test. Entities registering as participants will be supplied with a copy of the questionnaire. Completed questionnaires should be returned by 2 June 2013. Please see the press release on the EFRAG website for more details.

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