In response to the recent global shift towards using expected credit loss (ECL) accounting models, the Basel Committee on Banking Supervision has issued proposals for supervisory requirements on sound credit risk practices associated with the implementation and ongoing application of ECL accounting models.
The proposals contain 11 fundamental principles for sound credit risk practices that interact with ECL measurement.
They also include guidance specific to jurisdictions applying IFRS, and relating to the new ECL model in IFRS 9 Financial Instruments, issued in July 2014. The guidance focuses on three areas:
The Basel Committee stresses that the proposals do not intend to drive convergence between different accounting frameworks, but rather consistent interpretations and practices where common ground exists.
When finalised, the proposals would replace the current supervisory guidance on Sound credit risk assessment and valuation for loans, issued by the Basel Committee in June 2006.
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