IASB begins planned review of financial-crisis-era reform to loan-loss accounting

The International Accounting Standards Board (IASB) on 30 May launched a call for stakeholders’ feedback on its post-implementation review of the expected credit loss requirements in IFRS 9 Financial Instruments.

IFRS 9 was developed in response to the global financial crisis, following calls from the G20 and other bodies for more timely recognition of loan losses and a forward-looking impairment model.

The ‘expected credit loss’ model in IFRS 9 replaced the previous ‘incurred credit loss’ model, which only allowed credit losses to be recognised when a loss event occurred. Under the incurred credit loss model, the effects of possible future credit loss events were not considered, even when they were expected.

The main objective of the requirements in IFRS 9 is to provide investors with more useful information about a company’s expected credit losses. The Accounting Standard requires a company to recognise and update expected credit losses throughout the life of a financial asset, factoring in the losses it expects based on relevant available information. Consequently, investors receive more timely information about expected credit losses.

Disclosures play an important part in providing investors with the information they need about expected credit losses. As a result, the IASB is also seeking stakeholder feedback on related disclosure requirements in IFRS 7 Financial Instruments: Disclosures in this post-implementation review.

IASB Chair Andreas Barckow said:

The expected credit loss model in IFRS 9 represented the IASB’s main response to the global financial crisis. It was a large undertaking for banks and other companies to implement it. Initial feedback suggests the model performed well during the covid-19 pandemic; however, we seek feedback from stakeholders around the world to help us assess whether the requirements continue to work as intended.

The IASB conducts post-implementation reviews on all major new accounting requirements after companies have applied them for at least two years.

The review of IFRS 9 is being conducted in three parts. The first part, which covered the classification and measurement requirements, concluded in December 2022. The current review is the second part and covers the impairment requirements. The final part, which will cover hedge accounting, will be held at a later stage.

The Request for Information Post-implementation Review of IFRS 9 Financial Instruments―Impairment is open for comments until 27 September 2023.