• Service: Audit, Advisory
  • Type: Business and industry issue
  • Date: 2/16/2011

New on the Horizon: Impairment of financial assets in an open portfolio 

New on the Horizon: Impairment of financial assets in an open portfolio considers the supplement to the exposure draft Financial Instruments: Amortized Cost and Impairment.
The IASB’s and FASB’s efforts to develop a single common impairment model will result in significant changes – especially for banks applying the proposals to their open portfolios, given the change from recognising incurred credit losses to estimating future losses separately for the ‘good book’ and the ‘bad book’ within a portfolio. We analyse the proposals and highlight aspects that address concerns raised over previous proposals. We welcome another chance to discuss these important proposals, but also draw attention to the extent of the work still to be done before the IASB can issue a final standard.
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The proposed changes are intended to respond to the concerns about operation and complexity of the previous IASB impairment proposals issued in November 2009, for example by removing expected losses from the calculation of interest income. They also respond to concerns from non-financial sector entities by scoping out trade receivables from the project until the revenue recognition exposure draft is re-deliberated.


While it is encouraging to see these important aspects of the impairment model re-exposed for comment, there are many other elements of the project that are still to be deliberated by the Boards and will need to be included in their final standards. These include impairment for assets that are not part of an open portfolio, measurement of impairment and interest recognition. There is still a great deal to do; the IASB faces a significant challenge to finalize the standard by 30 June 2011.

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