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IASB meeting summaries and observer notes

 IASB December 2013


The IASB met on 12 December 2013 to continue its redeliberations on the clarifications and enhancements to the proposals in the Exposure Draft Financial Instruments: Expected Credit Losses (the Exposure Draft). The IASB will decide at a future meeting whether to proceed to finalise the Exposure Draft.

At this meeting, the IASB considered the following specific aspects of the proposals in the Exposure Draft:

        •     loan commitment and financial guarantee contracts; and
        •     transition and effect analysis

Agenda Paper 5A: Loan commitments and financial guarantee contracts

The IASB discussed whether the tentative decision that expected credit losses for revolving credit facilities should be estimated for the period over which an entity is exposed to credit risk and over which future drawdowns cannot be avoided, should be extended to other loan commitments and financial guarantees.

The IASB tentatively:

        •     confirmed the proposals in the Exposure Draft that the maximum period over which expected credit losses should be estimated for loan commitments and financial guarantee contracts, other than revolving credit facilities, is the contractual period over which the entity is committed to provide credit; 
        •     decided that an entity should apply the same discount rate when estimating expected credit losses on the drawn amount and the undrawn balance, unless the effective interest rate cannot be determined, in which case the discount rate should be determined as proposed in the Exposure Draft; and 
        •     decided that an entity should present the provision for the expected credit losses on the undrawn balance together with the loss allowance for expected credit losses on the drawn amount if the entity cannot separately identify the expected credit losses associated with the undrawn balance.

Sixteen IASB members agreed with these decisions.

Agenda Paper 5B: Transition and Effect Analysis

The IASB discussed the proposed transition requirements that an entity should apply on initial application of the proposed expected credit loss model. The IASB tentatively confirmed that: 

        •     the requirements should be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; and
        •     in order to assist entities to apply the proposals retrospectively, entities may apply the low credit risk exception (as proposed in paragraph C2(a) of the Exposure Draft) to identify financial instruments for which the credit risks have not significantly increased.

The IASB also tentatively decided to clarify that an entity could approximate the credit risk on initial recognition by considering the best available information that is available without undue cost or effort. The best available information is information that is:
        •     reasonably available and does not require the entity to undertake an exhaustive search for information; and
        •     relevant in determining or approximating the credit risk at initial recognition.

The IASB tentatively confirmed that if an entity is not able to determine or approximate the credit risk on initial recognition, the entity should measure the loss allowance based on the credit quality at each reporting date until that financial instrument is derecognised.

Furthermore, the IASB tentatively decided that it would in drafting, by the use of application guidance or by the use of examples, describe how: 

        •     an entity would consider the significant increases in credit risk on transition using the rebuttable presumption for contractual payments that are more than 30 days past due, if the entity identifies increases in credit risk according to days past due; and
        •     an entity could assess whether there have been significant increases in credit by comparing the credit risk at the date of transition to the initial maximum credit risk that is accepted for a particular portfolio (by product type and/or region).

Sixteen IASB members agreed with these decisions.


Date: 12/12/2013