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IASB invites comments on expected loss model

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25 Jun 2009

The IASB has published a Request for Information on the feasibility of using an expected loss model for the impairment of financial assets.

Impairment is one of the issues that the IASB is addressing in the second phase of its Comprehensive Review of IAS 39.
  • Incurred loss model. The current model in IAS 39 requires an entity to account for credit losses in financial assets only if an event (or a combination of events) has occurred that has a negative effect on future cash flows and that effect can be reliably estimated (this is known as the incurred loss model). A feature of that model is that an entity is not permitted to consider the effects of future expected losses. The financial crisis has highlighted this as an area of concern.
  • Expected loss model. At the request of the G20 leaders and others, the IASB is examining the expected loss model as an alternative. The expected loss model requires an entity to make an ongoing assessment of expected credit losses, which may require earlier recognition of credit losses. Proponents argue that this would better reflect the way that financial assets are priced and the way some companies manage their business.
The IASB invites responses to its Request for Information by 1 September 2009. Click for:

 

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