Cover note (Agenda Paper 27)

In this session, the IASB deliberated the feedback received in response to its request for information (RFI) Post-implementation Review—IFRS 9 Financial Instruments—Impairment. The deliberation was focused on the main requirements for measuring the expected credit loss (ECL), specifically, incorporation of forward-looking scenarios, use of post-model adjustments or management overlays (PMAs) and some application questions relating to measuring ECL.

This paper was not discussed as it was an overview paper.

Feedback analysis—Measuring expected credit losses (Agenda Paper 27A)

This paper summarised the staff analysis on the feedback received in response to the RFI on the main requirements for measuring ECL in IFRS 9.

Overall, the feedback from respondents was positive and indicated that the ECL measurement requirements regarding the use of forward-looking scenarios and PMAs are working as intended. While almost all respondents saw no fatal flaws, some respondents raised concerns that the diversity in practice relating to the incorporation of forward-looking scenarios and the use of PMAs in measuring ECL results in different ECL measurement outcomes and consequently reduce the usefulness of information provided to users of financial statements. They think IFRS 9 does not provide sufficient application guidance and suggested that the IASB adds guidance to support greater consistency in application of the requirements in these areas.

Staff recommendation

The staff recommended that the IASB does not take any further action on the matters raised by respondents regarding the use of forward-looking scenarios and PMAs in measuring ECL.

IASB discussion

On the issues raised by respondents around diversity in practice relating to use of forward-looking scenarios, IASB members stated that the diversity will be expected due to the judgment involved and the differences in how entities manage credit risk. Further, they agreed with the staff analysis that the costs of any standard-setting efforts to address this diversity would likely outweigh potential benefits, considering most entities already have established practices.

About the issues raised by respondents on use of PMAs, IASB members mentioned that the PMAs are a part of IFRS 9 and will be needed at times to meet the objectives of the standard. Further, they emphasised from the staff analysis that PMAs cannot represent general provisions, regardless of whether the ECL is measured on an instrument-by-instrument or on a collective basis. An IASB member mentioned that the comments from respondents are indicative that there is an incorrect application of the standard being applied in practice around PMAs and hence the IASB might want to consider the need of developing educational material.

Overall, IASB members agreed with the staff analysis that the current requirements and guidance in IFRS 9 offer sufficient guidance for entities to measure ECL for their credit exposure. However, they acknowledged the need to assess further the disclosure requirements for PMAs which will be discussed at a future meeting.

IASB decisions

All IASB members voted in favour of the staff recommendation.