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Financial instruments — Impairment


This project considered how impairment of financial assets and other financial instruments, such as certain issued loan commitments and financial guarantee contracts, should be measured and recognised, and formed part of the IASB's comprehensive project on financial instruments.

IAS 39 Financial Instruments: Recognition and Measurement recognised impairment of financial assets using an 'incurred loss model'. An incurred loss model assumes that all loans will be repaid until evidence to the contrary (known as a loss or trigger event) is identified. Only at that point is the impaired loan (or portfolio of loans) written down to a lower value.

This project considered various forms of an 'expected loss' approach, whereby expected losses are recognised before they are incurred, rather than after a loss event has been identified. Hence, under the expected loss approach, losses are recognised earlier than the incurred loss model. Proponents of the expected loss model believe it better reflects the lending decision.


Current status of the project

On 24 July 2014, the IASB published the finalised version of IFRS 9 Financial Instruments which incorporates a new expected loss impairment model (as well as limited amendments to the classification and measurement requirements for financial assets).


Project milestones

18 June 2009 Request for Information on expected loss model published Comment deadline 1 September 2009
5 November 2009 Exposure Draft ED/2009/12 Financial Instruments: Amortised Cost and Impairment published Comment deadline 30 June 2010
November 2009 Expert Advisory Panel formed
31 January 2011 Supplement to ED/2009/12 Financial Instruments: Amortised Cost and Impairment published Comment deadline 1 April 2011
7 March 2013 Exposure Draft ED/2013/3 Financial Instruments: Expected Credit Losses published
Comment deadline 5 July 2013
24 July 2014 IASB issues IFRS 9 Financial Instruments IFRS 9 (2014) was issued as a complete standard including the requirements previously issued and the additional amendments to introduce a new expected loss impairment model and limited changes to the classification and measurement requirements for financial assets.

This amendment completes the IASB’s financial instruments project and the Standard is effective for reporting periods beginning on or after 1 January 2018 with early adoption permitted (subject to local endorsement requirements).

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