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23 March 2018
Impairment – Scope
(IFRS 9 paragraph 5.5.1)
Within Scope Out of Scope
• Debt instruments classified • Equity instruments
as AC or FVOCI • Loan commitments and
• Lease receivables (IAS 17), guarantees measured at
trade receivables, and FVTPL
contract assets (IFRS 15) • Other financial instruments
• Loan commitments and measured at FVTPL
financial guarantee
contracts that are not FVTPL
Impairment – New Model
Past events
True (B5.5.28)
General Model – Dual Measurement
Approach
Under IFRS 9, impairment is measured as either:
• 12-month expected credit losses; or
• Lifetime expected credit losses
12-month ECL are all cash shortfalls that will result if a
default occurs in the 12 months after the reporting
date.
Lifetime ECL are the ECL that result from all possible
default events over the expected life of the financial
instrument.
Definition of “Default” (B5.5.37)
IFRS 9 does not define the term “default”, but
instead requires each entity to do so.
B5.5.37 states that an entity shall apply a default
definition that is consistent with the definition
used for internal credit risk management
purposes for the relevant financial instrument
and consider qualitative indicators when
appropriate.
Definition of “Default” (B5.5.37)
The definition of default used by an entity
should be applied consistently to all financial
instruments unless information becomes
available that demonstrates that another
default definition is more appropriate for a
particular financial instrument. (True or
False)
Definition of “Default” (B5.5.37)
The definition of default used by an entity should
be applied consistently to all financial
instruments unless information becomes
available that demonstrates that another
default definition is more appropriate for a
particular financial instrument.
True (B5.5.37)
When to use the 12-month ECL?
• Refer to the diagrams sent (IFRS 9 and KPMG)
• The 12-month ECL is used unless:
– The credit risk on a financial instrument has
increased significantly since initial recognition; or
– Special measurement requirements apply (credit-
impaired financial assets and simplified approach
for trade and lease receivables and contract
assets)
When to use the 12-month ECL?
For financial instruments that have significant
payment obligations only close to maturity,
the 12-month ECL may not be the appropriate
measure. (True or False)
When to use the 12-month ECL?
For financial instruments that have significant payment
obligations only close to maturity, the 12-month ECL
may not be the appropriate measure.
False (B5.5.10)
Assessing whether credit risk has
increased significantly
For comparison purpose, the aggregation of
financial instruments cannot change over
time. (True or False)
Assessing whether credit risk has
increased significantly
For comparison purpose, the aggregation of
financial instruments cannot change over
time.
False (B5.5.6)
IFRS 9 states that the credit risk is low
if: (B5.5.22)
• The instrument has a low risk of default;
• The borrower has a strong capacity to meet its
contractual cash flow obligations in the near
term; and
• Adverse changes in economic and business
conditions in the longer term may, but will not
necessarily, reduce the borrower’s ability to
fulfill its obligation.
Low credit risk financial instruments
Financial instruments that are backed by
collateral and that have relatively lower risk
of default compared to entity’s other
financial instruments are considered to have
low credit risk at reporting date. (True or
False)
Low credit risk financial instruments
Financial instruments that are backed by
collateral and that have relatively lower risk of
default compared to entity’s other financial
instruments are considered to have low credit
risk at reporting date.
False (B5.5.22)
Low credit risk financial instruments
To determine whether a financial instrument
has low credit risk, the financial instrument
has to be externally rated. (True or False)
Low credit risk financial instruments
To determine whether a financial instrument has
low credit risk, the financial instrument has to be
externally rated.