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IFRS 9: Financial Instruments

IASB meeting summaries and observer notes

 IASB November 2012


Education sessions—Financial Instruments: Impairment

The IASB held an education session on Monday 19 November to continue its discussion of the proposed IASB impairment model.

No decisions were made.

The IASB and the FASB also held a joint education session on Tuesday 20 November on the FASB’s proposed Current Expected Credit Loss impairment model.

No decisions were made.


In October 2012 the IASB staff presented a summary of feedback received through recent outreach about the three-bucket impairment model. Overall, the majority of outreach participants, including analysts, supported an impairment model that distinguishes assets that have deteriorated in credit quality from those that have not. However, additional clarification was requested of the criteria that determine when lifetime losses are measured and how the criteria would apply to retail loans. In addition, some noted that the benefit of the information resulting from the distinction between 12-month and lifetime expected losses should not outweigh the cost and complexity of obtaining such information. At that meeting, the IASB asked the IASB staff to explore ways to address those concerns and to prepare a paper summarising the feedback received on the Supplementary Document as a reminder of why the IASB rejected that approach in favour of the three-bucket model.

At this meeting the IASB discussed suggested clarifications to the criteria for recognition of lifetime expected losses in the three-bucket model. The IASB tentatively decided to simplify the requirements to now contain only one criterion, namely that an entity should recognise a lifetime expected loss in the three-bucket model if there has been significant deterioration in credit quality since initial recognition (taking into consideration the term of the asset and the original credit quality). An example of significant deterioration would be if an existing financial asset would be priced differently because of the increase in credit risk since initial recognition.

To alleviate the complexity and cost of performing an assessment of credit risk deterioration for higher credit quality assets, the IASB also tentatively decided that the recognition of lifetime expected losses for a higher credit quality asset is when it deteriorates to below "investment grade".

The IASB also agreed to provide guidance on how to assess the criterion, including the types of information that should be considered. The IASB has previously tentatively decided that an entity should use the best information that is available without undue cost and effort. To supplement this decision, the IASB also tentatively decided that:

  1. the borrower-specific information an entity considers in applying the requirements may include delinquency information, and to include a rebuttable presumption that the criterion for recognition of lifetime expected losses shall be met if an asset is 30 days past due, together with disclosure if this presumption is rebutted; and
  2. an entity may use a 12-month probability of default to assess the lifetime expected loss criterion, unless there is information that would indicate that this would not result in the same outcome if a lifetime probability of default was used (such as if the loss curve is abnormal).

In response to a request by the IASB in July 2012 to consider the effect of the disclosure requirements for non-financial institutions, the IASB staff presented an analysis of the current disclosure decisions and their applicability to entities applying the simplified approach for trade and lease receivables under the three-bucket model.

The IASB observed that the disclosures would be generally applicable; however, the IASB tentatively decided that for entities applying the simplified approach:

  1. a provision matrix may be used as a basis for the disclosure of the risk profile;
  2. the disclosure of modifications should be limited to assets that are more than 30 days past due; and
  3. for lease receivables, the following will not be required because of overlap with the decisions in the Leases project:
    1. the reconciliation of the gross carrying amount of the lease receivable; and
    2. the disclosure of a qualitative description of the leased asset as part of the collateral disclosures.

The IASB tentatively decided to proceed with the three-bucket model, with the clarifications as set out above.

All IASB members agreed with these decisions.

Next steps

The IASB noted that it has now completed the technical discussions for developing the proposed three-bucket model.

At its December meeting, the IASB will discuss:

  1. compliance with due process requirements;
  2. considerations for re-exposure; and
  3. comment period and permission to ballot.

The IASB intends to publish an Exposure Draft on the three-bucket model in the first quarter of 2013.

Date: 11/19/2012