Deloitte comment letter on IASB ED/2013/3 'Financial Instruments: Expected Credit Losses'

Published on: 07 Jul, 2013

Deloitte Touche Tohmatsu has responded to the International Accounting Standards Board's Exposure Draft, ED/2013/3 Financial Instruments: Expected Credit Losses.

We support the Board's efforts to improve the accounting for recognition of credit losses on financial assets (currently subject to the requirements of IAS 39 Financial Instruments: Recognition and Measurement and to be replaced by a new chapter in IFRS 9 Financial instruments) by addressing the weaknesses in the existing incurred loss model that were observed during the global financial crisis. We agree with the Board's objective of recognising and measuring credit losses of financial assets within the scope of the exposure draft on the basis of an entity's current expectations about the collectability of contractual cash flows. An impairment model that is based on expected credit losses that incorporates information about past events, current conditions, and reasonable and supportable forecasts of future events and economic conditions as at the reporting date avoids the inherent problem in an incurred loss model, under which there may be delayed recognition of credit losses because objective evidence of impairment may not be identified timely in practice. Further, we support the Board's decision to develop a single impairment objective for all types of financial assets within the scope of the exposure draft.

Whilst we are supportive of the Board's objectives, we are concerned that the approaches to meet those objectives taken by the Board and by the Financial Accounting Standards Board (FASB) in Accounting Standards Update, Financial Instruments – Credit Losses are significantly different. We strongly encourage the boards to converge their guidance on expected credit losses because we believe that converged guidance on this topic is critical to supporting well-functioning global capital markets.

We are supportive of the basic elements of the Board's proposed impairment model such as differentiating financial assets on the basis of credit quality and basing the impairment measurement on expected losses. However, we have concerns about certain aspects of the model.

Download the full comment letter below.


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