New IFRS For Impairment Of Financial Instruments

After the financial crisis of 2007-8, it became glaringly obvious that amendments were necessary to the existing accounting rules for financial instruments. The International Accounting Standards Board (IASB) issued IFRS 9, Financial Instruments on July 24, 2014. The following is a summary of the new impairment rules.

Overview of expected credit loss model

The following financial instruments fall within the scope of the expected credit loss (ECL) model:

• Financial assets measured at amortized cost;
• Financial assets mandatorily measured at fair value through other comprehensive income (FVOCI);
• Loan commitments that are not measured at fair value through profit and loss (FVPL) when there is a present obligation to extend credit;