Impairment of Financial Instruments 1

What’s the issue?

The International Accounting Standards Board (IASB) has begun its first deliberations following stakeholder feedback received to its request for information as part of the post-implementation review of IFRS 9: Phase 2 – Impairment. 

What does this mean?

At its February 2024 meeting, the IASB began to discuss stakeholder feedback to its request for information.

General approach to the recognition of expected credit losses (ECL)

Without questioning the general approach, stakeholders had called on the IASB to reconsider its application to:

• intergroup loans and guarantees; and
• purchased or originated credit-impaired financial assets (POCI).

In response, the Board decided to take no further standard-setting measures, as it considers that the issues raised can be resolved within the existing framework, and because it does not wish to depart from a principles-based approach or call into question practices that have already been implemented.

However, the IASB staff plan to seek the opinion of the Interpretations Committee at its March 2024 meeting in order to analyse the application difficulties reported and to understand whether each of the matters is pervasive, has substantial consequences and what is the root cause for the matter. The IASB staff paper looks at:

• intragroup financial instruments;
• loan commitments;
• financial guarantee contracts; and
• POCI financial assets.

Determining significant increases in credit risk

Stakeholders had drawn the IASB’s attention to:

• The diversity in practice when determining significant increases in credit risk (SICR); and
• The limited use of collective assessment of the SICR.

In response, the Board decided to take no additional standard-setting measures, for the same reasons as those outlined above for the general approach.

When is it effective?

In the coming months, the IASB will continue to analyse and deliberate the feedback comments with a view to issuing the feedback summary in the second half of 2024.

The forthcoming meetings will consider feedback on the measurement of provisioning and post-model adjustments, interactions with other standards, and disclosures in the notes to the financial statements.