Professional, Supportable, and Audit-Ready ECL Solutions

Valuation is a disciplined professional practice. It relies on quantitative science, but it equally depends on informed professional judgment. In financial reporting, there is no single “most accurate” figure; rather, the goal is to establish a supportable and reasonable valuation.

When the purpose of a valuation is financial reporting, its primary objective is fulfilling accounting standards (such as IFRS 9 / HKFRS 9) and satisfying rigorous auditor reviews. Valtech Valuation combines technical quantitative modeling with deep financial reporting insight to deliver ECL valuation solutions that stand up to regulatory and audit scrutiny.

Navigating Regulatory Scrutiny in Impairment Reporting

Regulators, including the Accounting and Financial Reporting Council (AFRC) and regional stock exchanges, have increased their focus on financial instrument impairment and valuation assumptions. Common audit deficiencies identified in the market include:

• Oversimplified Assumptions: Applying uncalibrated global default rates without linking counterparty risk profiles to actual historical data.
• Unjustified Default Presumptions: Rebutting the 90-days-past-due default presumption without supporting empirical analysis.
• Missing Forward-Looking Factors: Failing to quantitatively incorporate macroeconomic variables into default probability estimates.

Valtech addresses these challenges directly by providing methodology-driven, entity-specific ECL assessments built to satisfy audit standards.

Our IFRS 9 / HKFRS 9 ECL Service Offerings

Valtech offers full-scope Expected Credit Loss advisory for corporations, listed issuers, fund managers, and financial institutions:

• Full ECL Assessment & Modeling: Comprehensive modeling for trade receivables, contract assets, debt investments, intercompany loans, and financial guarantee obligations.
• Staging Support & SICR Assessment: Identifying Significant Increase in Credit Risk (SICR) triggers across Stage 1, Stage 2, and Stage 3 assets using quantitative metrics and business context.
• PD & LGD Calibration: Deriving Probability of Default (PD) and Loss Given Default (LGD) by calibrating external empirical data (such as Moody’s or S&P datasets) to your specific counterparty profiles.
• Forward-Looking Macroeconomic Integration: Incorporating forward-looking economic factors—such as inflation rates, employment statistics, national income metrics, and fiscal policy trends—into multi-scenario predictive models.
• Rebuttal Analysis & Staging Justification: Preparing statistical data summaries and historical analyses to objectively support default threshold rebuttals when appropriate.
• IPO-Related Policy Setup: Establishing standardized ECL policies and governance frameworks for companies preparing for initial public offerings.
• Financial Guarantee Valuation: Assessing credit risk exposure and measuring fair value / ECL for parent-subsidiary guarantees.

The Core ECL Framework

Under IFRS 9 / HKFRS 9, Expected Credit Loss is evaluated across multiple forward-looking economic scenarios:

ECL=∑(i=1 to n) w_i ×(PD_i×LGD_i×EAD_i×DF_i )

PD_i: Probability of Default under economic scenario i

LGD_i: Loss Given Default under economic scenario i

EAD_i: Exposure at Default

DF_i: Discount Factor

w_i: Probability weighting assigned to economic scenario i

Valtech’s quantitative specialists ensure that each variable within this framework is backed by supportable market evidence and documented rationale.

Why Choose Valtech Valuation?

We do not just hand over a report; we actively assist management in addressing auditor inquiries. We explain key modeling assumptions, sensitivity analyses, and accounting standard alignment to help streamline your audit sign-off process.