IFRS 9 ‘ Financial instruments’ came into effect on 01 January 2018 and establishes a new model for impairments of financial assets. Whereas previously a business would look at the historic circumstances and recognise a provision for debt, IFRS 9 requires a company to assess the expected future credit loss which is calculated using the following components.
- Exposure - Balance exposed to possible default
- Loss if default - % share lost by lender if borrower defaults
- Probability of default - Likelihood that borrower cannot pay
At Pageline we can break down the complicated requirements of IFRS 9 and develop a spreadsheet which automatically calculates the Expected Credit Loss a company should recognise.