THE INTERNATIONAL Accounting Standards Board (IASB) has provided clarification around the attributes of an expected credit loss estimate used in accounting for financial instruments.
At a joint board meeting last week, the Financial Accounting Standards Board (FASB) and IASB, clarified the attributes of an expected credit loss estimate to address concerns raised about the use of the term expected value.
According to the clarification posted on the FASB website, an estimate of expected credit losses should reflect; all reasonable and supportable information considered relevant in making the forward-looking estimate; a range of possible outcomes and the likelihood and reasonableness of those outcomes; and the time value of money.
The boards also clarified the so called ‘three bucket’ approach, designed to help banks make responsible provisions and decide when and how to impair assets and make corresponding provisions.
“They agreed wording for the objective of the first bucket, which is to provide for lifetime expected losses of loans which will hit difficulties in the first year. They also agreed that that this impairment model should extend to trade receivables,” Peter Walton, IFRS director, wrote in a report of the meeting.
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