Background
IFRS 9 Financial Instruments is the IASB’s replacement of IAS 39 Financial Instruments: Recognition and Measurement. The Standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after 1 January 2018 with early adoption permitted (subject to local endorsement requirements). For a limited period, previous versions of IFRS 91 may be adopted early, provided the relevant date of initial
application is before 1 February 2015 (again, subject to local endorsement requirements).
General approach
With the exception of purchased or originated credit-impaired financial assets (which are considered separately below), expected credit losses are required to be measured through a loss allowance at an amount equal to:
– 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date); or
– lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument).
A loss allowance for lifetime expected credit losses is required for a financial instrument if the credit risk on that financial instrument has increased significantly since initial recognition. It is also required for contract assets or trade receivables that are not, according to IFRS 15, considered to contain a significant financing component. Additionally, entities can elect an accounting policy of recognising lifetime expected credit losses for all contract
assets and/or all trade receivables, including those that contain a significant financing component. The same election is also separately permitted for lease receivables. For all other financial instruments, expected credit losses are measured at an amount equal to the 12-month expected credit losses.
