Implementation issues related to the expected credit loss (ECL) impairment model in IFRS 9 Financial Instruments have given standard-setters and companies plenty to think about.
At the IASB’s October meeting, the Board received an update on the activities of the IFRS Transition Resource Group for Impairment of Financial Instruments (the ITG). The ITG has been analysing implementation issues raised by stakeholders.
The Board considered a summary of the ITG’s activities. The ITG has held two substantive meetings – in April and September – and discussed 15 implementation issues so far, out of 21 previously submitted to the IASB staff.
The staff reported that ITG members generally agreed with the staff’s accounting analyses on the issues raised. Accordingly, the IASB staff did not discuss any specific issues from the April ITG meeting with the Board.
However, the staff presented a detailed analysis of one issue from the September ITG meeting to the Board.
The specific issue discussed at the Board’s October meeting related to the way ECLs are measured for revolving credit facilities.
The question was whether it would be appropriate to include amounts in excess of the contractual credit limit when estimating future draw-downs in respect of the undrawn element of these facilities.
This is relevant because customers may be allowed to make draw-downs in excess of the contractual credit limit before defaulting.
The staff reported that ITG members agreed that IFRS 9 limits estimates of future draw-downs to the contractually agreed credit limit. However, a number of ITG members expressed concerns that the issue would create a discrepancy between the accounting treatment and the credit risk management view.
The IASB acknowledged the issue, but did not propose that any further action be taken. This was mainly because:
The IASB also did not propose that the staff take any action on any of the other 14 issues discussed to date by the ITG – which suggests that no further action will occur.
This is consistent with the staff’s view that the discussions have focused on practical implementation challenges rather than reflecting disagreements about the accounting principles.
The ITG’s third substantive meeting is planned for 11 December 2015. Only one of the six issues previously submitted to the ITG meets its criteria for discussion at the meeting. This issue will be considered at the next meeting, alongside other new submissions made by the 21 October deadline.
Look out for our IFRS Newsletter: IFRS 9 Impairment shortly after the next meeting. And go to our IFRS – Financial instruments hot topics page for more on these and other aspects of financial instruments accounting under IFRS.
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