Impairment methodology 

The IASB proposals introduce a new ‘expected loss’ impairment methodology that would reflect deterioration in the credit quality of financial assets such as loan portfolios. The proposed model would require recognition of lifetime expected credit losses for financial assets whose credit risk has deteriorated significantly since initial recognition and a 12-month expected loss allowance for other financial assets.

The new model would apply to financial assets that are recognised on the balance sheet, such as loans or bonds, and measured either at amortised cost or at fair value with gains and losses recognised in other comprehensive income. It would also apply to certain loan commitments and financial guarantees.

The Exposure Draft is open for comment until 05 July 2013.

Timeline      

            
        
IFRS insights

• New on the Horizon: Financial instruments - Expected credit losses
  The IASB's revised proposals are a step change in accounting for impairment, with big impacts likely for banks and similar financial institutions.
  
• New on the Horizon: Impairment of financial assets in an open portfolio  
  This publication looks at the requirements and observations on the Supplement Financial Instruments: Amortized Cost and Impairment. 
• New on the Horizon: Financial Instruments - Amortised Cost and Impairment             
  This edition of New on the Horizon considers the requirements of ED/2009/12 Financial Instruments: Amortised Cost and Impairment.