Financial Instruments: IFRS-9 — Impairment (Portfolio 5186)

Bloomberg BNA Tax and Accounting Portfolio 5186, Financial Instruments: IFRS 9—Impairment, examines how an entity accounts for impairment of nonderivative financial assets under International Financial Reporting Standards (IFRSs). To access this Portfolio, visit Bloomberg Tax Financial Accounting Resource Center for a free trial.

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This Portfolio is part of the Accounting Policy and Practice Series, an essential resource including more than 70 accounting Portfolios and the latest news and developments.


Bloomberg BNA Tax and Accounting Portfolio 5186, Financial Instruments: IFRS 9—Impairment, examines how an entity accounts for impairment of nonderivative financial assets under International Financial Reporting Standards (IFRSs). The Portfolio focuses on the requirements of IFRS 9, Financial Instruments (July 2014).

This Portfolio does all of the following:

• Paraphrases the existing authoritative international guidance as set out in IFRS 9;
 • Offers insight into the rationale for, and practical consequences of, the authoritative guidance;
• Provides context for and observations about illustrative examples set out in the authoritative guidance; and
• At a high-level, notes how authoritative generally accepted accounting principles in the United States (as set out in the FASB Accounting Standards Codification) compare and contrast with the authoritative international guidance.

The analysis is drawn from review of the authoritative guidance, but also from the supporting project materials of the International Accounting Standards Board (IASB)—for example, the basis for board's conclusions and related dissents, exposure drafts, comment letters, and other project documentation.

This Portfolio may be cited as Bloomberg BNA Tax and Accounting Portfolio 5186, Green, Financial Instruments: IFRS 9—Impairment (Accounting Policy and Practice Series). Within the Accounting Policy and Practice Portfolio Series, however, references to the Portfolios will include only the Portfolio numbers and titles.


James F. Green, CPA-IL

Jim is an Illinois CPA who helps people understand generally accepted accounting principles and related subjects. Jim has applied, helped set, and offered insights into GAAP and other professional requirements for 30 years—

• Analyzing accounting and other principles for clients in industry and public practice;
• Helping the Financial Accounting Foundation create the FASB Accounting Standards Codification® through his analysis, authoring, and editing;
• Developing and communicating accounting technical positions—including positions on financial instruments, derivatives, hedging, securitizations, and foreign currency translation—as a partner in Arthur Andersen's Professional Standards Group;
• Writing guidance on accounting, auditing, and regulatory matters as staff of several financial services committees of the American Institute of Certified Public Accountants;
• Representing the AICPA on accounting and auditing issues before the United States Congress and federal regulatory agencies; and,
• Auditing financial statements as a manager at KPMG.

Jim has a BBA in accounting from the College of William and Mary in Virginia. Jim speaks English and Spanish and devotes his volunteer time to literacy and hunger issues.

Table of Contents

Detailed Analysis
I. Introduction
Introductory Material
A. Conceptual Overview
1. Credit Risk
2. Interest Rate Risk
B. The Financial Instruments Portfolios
C. The Financial Instruments Guidance
1. Impairment Models - Overview
a. Contrast with the Incurred-Loss Model
b. U.S. GAAP Project on Credit Losses
2. Materiality and Significance
3. Implementation Guidance
a. Transition Resource Group for Impairment of Financial Instruments
b. Guidance on Implementing IFRS 9, Financial Instruments
c. Basel Committee on Banking Supervision
II. Scope of the Guidance
Introductory Material
A. Entity Scope of the Guidance
B. Item Scope of the Guidance
1. Financial Assets in Scope
a. Financial Assets at Amortized Cost (Hold Only)
b. Financial Assets at Fair Value through Other Comprehensive Income (Hold and Sell)
c. Lease Receivables
d. Rights Under Customer Contracts (Contract Assets)
e. Purchased (or Originated) Credit-Impaired Financial Assets
2. Financial Liabilities in Scope
a. Irrevocable Written Loan Commitments
b. Written Financial Guarantees
3. Items Not in Scope
C. Unit of Account
III. Appropriate Information
Introductory Material
A. Forward-Looking Information
1. Timing of Economic Forecasts
2. Suitability of Forward-Looking Information
B. Credit Risk Information
1. Internal Credit Risk Rating Grades
2. Debtor Behavior
IV. Monitoring Credit Risk
Introductory Material
A. Approach to Monitoring Credit Risk
1. What is a Significant Increase?
2. 12-Month-Horizon Shortcut
3. Unit of Account: Collective Assessment
B. Lifetime-Losses Shortcut (or Simplified Approach)
C.  Low-Credit-Risk Shortcut
1. Investment Grade
a. Fitch Ratings
b. Moody's
c. Standard & Poor's
2. Continuing Evaluation of Low-Credit-Risk
D. Identifying Credit Impairment
E.  90-Day Presumption
F. 30-Day Presumption
V. Estimating Expected Credit Losses
Introductory Material
A. Qualitative Considerations
B. Contractual Terms
1. Covenants
2. Credit Enhancements
3. Effective Interest Rates
C. Expected Life
D. Estimate from Possible Default Events
1. Default Isn't Defined
2. Identify Possible Default Events and Probabilities
3. Lifetime Cash Shortfalls
4. Credit Losses
E. Expected Credit Losses
F. Credit-Loss-Rate Approach
VI. Subsequent Accounting Other Than for Impairment
Introductory Material
A. Interest Revenue
B. Contractual Changes
1. If Contractual Changes Result in Derecognition
2. If Contractual Changes Don't Result in Derecognition
C. Write-Offs
D. Reclassifications of Nonderivative Financial Assets
E. Purchased (or Originated) Credit-Impaired Financial Assets
F. Financial Assets at Amortized Cost (Hold Only)
G. Financial Assets at Fair Value Through Other Comprehensive Income (Hold and Sell)
VII. Credit-Risk Disclosures
Introductory Material
A. Disclosure Objectives and Scope
B. How the Entity Manages and Measures Credit Risk
C. Amounts and Analysis of Expected Credit Losses
1. Changes in Credit-Loss Allowances
a. Credit-Loss Allowance Tables
2. Changes in Gross Carrying Amounts
3. Contractual Changes
4. Credit Enhancements
a. Generally
b. Assets Received Under Credit Enhancements
D. Credit-Risk Exposures and Concentrations
VIII. Adoption of the Expected Credit Losses Model
Introductory Material
A. Incremental Adoption of IFRS 9 (July 2014)
1. Relation to Adoption of the Classification and Measurement Guidance
2. General Approach to Adoption
3. Lifetime-Losses Adoption Shortcut
4. Low-Credit-Risk Adoption Shortcut
5. 30-Day Presumption at Adoption
B. First-Time Adoption of International Financial Reporting Standards
1. General Approach Within Transition to IFRSs
2. Lifetime-Losses Shortcut Within Transition to IFRSs
3. Low-Credit-Risk Shortcut Within Transition to IFRSs
4. 30-Day Presumption Within Transition to IFRSs

Working Papers

Worksheet 1 Impairment Disclosure Checklist
Worksheet 2 Example: Debt Instrument Classified as Fair Value through Other Comprehensive Income
Worksheet 3 Example: Fixed-Rate, Foreign-Currency-Denominated Debt Instrument Classified as Fair Value Through Other Comprehensive Income and Hedged for Interest-Rate Risk
Worksheet 4 IASB Examples of Calculating Gross Carrying Amount