At this meeting, the Board continued its redeliberations on phase II of the project to replace IAS 39 Financial Instruments: Recognition and Measurement. The Board continued its discussions in the context of open portfolios of financial assets, and will consider any specific issues for individual financial assets after a general impairment model for open portfolios has been developed.
Treatment of initial expected loss (EL) estimates
At this meeting, the Board discussed the broad approaches for the treatment of initial EL estimates. The two alternatives were to:
- recognise the entire lifetime EL in the first period; or
- allocate the lifetime EL over the life of the portfolio.
The Board tentatively decided to proceed with developing an approach that allocates the lifetime EL over the life of the portfolio.
Allocating the EL over the life of the portfolio
On the basis of the tentative decision to allocate the lifetime EL over the life of the portfolio, the Board then discussed whether to allocate the lifetime EL using an integrated or non-integrated (ie 'decoupled') effective interest rate.
The Board tentatively decided to permit the use of a 'decoupled' effective interest rate (ie the EL estimate and effective interest rate are calculated and accounted for separately over the life of the portfolio). The Board agreed that 'decoupling' the effective interest rate was one way to make the EL approach to impairment more operational than the integrated effective interest rate that had originally been proposed in the exposure draft.
The IASB and FASB also held an education session as preparation for their joint discussions, which will begin once the comment period on the FASB FI proposals closes.