Financial Instruments: Recognition and Measurement

Date recorded:

Comparison between impairment approaches

With the objective of aiding Board members decide between the three different impairment approaches (incurred loss approach, expected cash flow approach and fair value based approach) the staff presented their paper comparing each approach.

One Board member requested that the cost to stakeholders of each model not only be shown as a cost of implementation but instead be split between cost of implementation and on-going cost. It was agreed that this would allow a better comparison to the existing model which has no incremental implementation cost.

Board members enquired whether the costs of implementation of the expected loss model would be significant for banks given their existing internal systems used to produce Basel 2 data and fair value calculations. The staff explained that this was being explored in discussions with banks over the next month.

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