IASB – Accounting for ECL applying IFRS 9 in the light of current uncertainty resulting from the COVID-19 pandemic

29 April 2020

The IFRS Foundation shares global concerns about the impact of the COVID–19 outbreak and is monitoring developments guided by statements from public health authorities. Given this, the IASB has published responses to questions regarding the application of IFRS 9 in this period of uncertainty.

IFRS 9 sets out a framework for determining the amount of expected credit losses (ECL). It requires that lifetime ECL is recognised when there is a SICR on a financial instrument.

Assumptions and linkages used to estimate ECL to date may no longer be applicable during the pandemic. Entities should not continue to apply their existing ECL methodology without considering the wider impact, for example extensions of payment holidays in financial instruments should not automatically result in those instruments being considered SICR.

The assessment of SICR and estimation of ECL is required to be based on reasonable and supportable information that is available.

Entities are required to develop estimates based on previous events, current conditions and future forecasts of economic conditions. Macroeconomic scenarios are to be considered along with post model overlays and adjustments where appropriate. Entities should consider the effect of COVID-19 alongside government fiscal measures that are offered.

COVID-19 creates high levels of uncertainty; however, ECL still provides useful information by applying reasonable and supportable information and not mechanistically applying IFRS 9 without considering the wider implications. In stressed environments, IFRS 9 and the associated disclosures can provide much needed transparency to users of financial statements.

Several prudential and securities regulators have published guidance commenting on the application of IFRS 9 during the pandemic (including the European Banking Authority, the European Central Bank, the European Securities and Market Authority and the Prudential Regulation Authority). The guidance provided by specific regulators is to be referred to.

The information provided by IASB does not change, remove nor add to the requirements of IFRS 9.