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IASB publishes supplement to exposure draft on impairment

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31 Jan 2011

Today the IASB and FASB have published for public comment joint proposals on the impairment of financial assets, a supplementary document to the November 2009 IASB exposure draft 'Financial Instruments: Amortised Cost and Impairment'.

Many respondents to the IASB's original exposure draft agreed with the impairment approach proposed but considered it to be operationally too difficult to apply, especially in the context of open portfolios.

Financial Instruments: Impairment proposes to replace the incurred loss impairment models in IAS 39 Financial Instruments: Recognition and Measurement and US GAAP with an expected loss impairment model including separate approaches to recognising expected losses for performing assets in a "good book" and for troubled assets in a "bad book". Expected credit losses in the "good book" would be recognised under a time-proportional approach based on the weighted average age and expected life of the assets in the portfolio, but subject to a minimum allowance of at least those credit losses expected to occur in the foreseeable future (a period on not less than twelve months from the reporting date). When assets are transferred from the "good book" to the "bad book" the proposals would require the expected credit loss to be immediately recognised.

The supplement also includes an IASB-only Appendix Z Presentation and Disclosure for public comment, which includes separate proposals on impairment of financial assets specifically addressing scope, presentation and disclosure. These proposals have been deliberated only by the IASB at this time. The FASB may separately deliberate presentation and disclosure requirements related to proposals in the supplementary document.

The exposure draft forms part of the IASB's overall project to replace IAS 39 Financial Instruments: Recognition and Measurement, and when their proposals are confirmed they will be incorporated into IFRS 9 Financial Instruments.

The supplement has a 60-day comment period with comments due on 1 April 2011.

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