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IFRS 9: Financial Instruments

IASB meeting summaries and observer notes

 IASB / FASB April 2011



The IASB and FASB discussed feedback from the outreach activities and comment letters on the joint supplementary document Financial Instruments: Impairment, interest income recognition and the definition of amortised cost and whether to discount a loss estimate.

The joint supplementary document was issued in January 2011 and the comment letter deadline was 1 April 2011. The boards discussed feedback from the comment letters received on the document along with the results of outreach activities during the comment period.

The boards also discussed interest revenue recognition and the definition of amortised cost. They tentatively decided that to determine interest revenue the effective interest rate would be applied to an amortised cost balance that is not reduced for credit impairment. All IASB and FASB members present agreed.

Subsequently, the boards discussed whether to discount a loss estimate and, specifically, whether expected losses should be measured as principal only on an undiscounted basis or as all shortfalls in cash flows (both principal and interest) on a discounted basis. The boards tentatively decided that the measurement of expected losses should reflect the effect of discounting. Any finalised guidance will clarify that a variety of techniques can be used to measure this amount and that the unit of account does not have to be an individual loan. All IASB and FASB members present agreed.

The boards then discussed several alternatives on whether to unwind any discount on expected losses through interest revenue (either separately presented or in a net presentation), or through impairment losses. The boards tentatively decided to include the unwinding of the discount in the impairment losses line item and, after considering any operational issues, will later consider whether to require disclosure of the effect of the unwinding on the allowance account. All FASB members and 9 IASB members accepted this alternative.

As a result of these discussions, the boards tentatively decided that they did not need to consider the inclusion of a non-accrual principle for an impairment accounting model.

In subsequent meetings feedback received on the supplementary document will be considered as the boards continue to develop the impairment accounting model.

Date: 4/13/2011