Our Comments on IASB Financial Asset Impairment Proposals

Friday, July 12, 2013 Print Email

The Exposure Draft, ED/2013/3 'Financial Instruments: Expected Credit Losses' which has been published quiet a sometime ago by International Accounting Standards Board (IASB) receives a comment letter in response to its Exposure Draft.

We have planned to support the board’s decision and ideas which have been decided to improvise the conditions in the existing system of accounting. This will be a significant step in recognizing the credit losses on financial assets.

International Accounting Standards Board (IASB) is taking measures to address the weaknesses in the existing incurred loss model which will help to improve the accounting system. We strongly believe in the Board’s attempt in recognizing the credit losses of financial assets. But in this regard it is highly important that to analyze the entity’s current expectations regarding the collectability of contractual cash flows.

As far as the proposed impairment model is concerned we suggest that alternate approach must be used in the assessment of credit quality. This aspect would also help in getting rid of the accounting anomalies

The comment letter on the Exposure Draft, ED/2013/3 'Financial Instruments: Expected Credit Losses' stated following points

1. We have decided upon supporting the International Accounting Standards Board (IASB) decision that all type of financial assets which lies within the scope of Exposure draft to be treated with single impairment objective.

2. All the measurements taken by both boards, IASB and FASB in Accounting Standards Update, Financial Instruments – Credit Losses are clearly different. Moreover, for the well-functioning global capital markets converged guidance may prove to be critical in supporting it.

3. We extensively support the basic key points outlined by the IASB’s proposed impairment model which includes differentiating financial assets on the basis of credit quality etc. but we hold concern over the model e.g. requiring entities to use a relative credit quality assessment.

4. The proposal says that measurement on interest revenue on originated credit to be done which we disagree.

5. Recognition on allowance should be done for the purchased credit-impaired assets.

6. We share concerns on the FASB decision on the proposed impairment model requires recognition of full lifetime. And we agree with the effective interest rate on the cash flows. 

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