ESBG advocates for further clarity in IFRS 9 Impairment requirements

On 29 September, ESBG submitted its response to the International Accounting Standards Board’s (IASB) Request for Information on the Post-implementation Review of IFRS 9’s impairment requirements.

Overall, while ESBG generally supports the effectiveness of IFRS 9, it underlines the need for refinement in certain critical areas.

One of the key aspects ESBG addresses pertains to the recognition of expected credit losses. Financial entities face ongoing cost risks due to regulatory interpretations of IFRS 9. As such, ESBG advocates for clarity in the Standard, suggesting that assessing credit risk increases individually should not preclude collective loss calculations. This proposed amendment aligns with cost-benefit analysis, demonstrating the efficiency gains achieved through collective calculations.

ESBG also draws attention to the determination of significant increases in credit risk (SICR), emphasizing the need for clarity and practicality. In this regard, it proposes clearer SICR determination methods and further guidance on extending the low credit risk exemption, aligning with international standards.

Measuring expected credit losses is another area of concern. While ESBG appreciates the principle-based approach, it highlights the need for additional guidance to ensure consistency among entities. Clear application guidance, illustrative examples, and unambiguous “bright lines” for using forward-looking information are essential.

For purchased or originated credit-impaired financial assets, ESBG suggests changes to the accounting approach to address consistency challenges and operational complexities faced by financial institutions.

Furthermore, we emphasize the importance of clearer and more comparable credit risk disclosures, proposing clear disclosure objectives, requirements for judgment in compliance, and entity-specific disclosure standards.

ESBG’s dedicated response to the IASB’s review of IFRS 9’s impairment requirements underscores our unwavering commitment to shaping the future of financial reporting. This priority topic reflects our steadfast dedication to transparency, accountability, and excellence in financial standards, ensuring they continue to evolve in a manner that benefits all stakeholders.