IFRS 9 and Covid 19

IFRS 9- Financial Instrument and Covid 19 (Coronavirus)

•  It doesn’t change any requirement of standard but provides more clarity on implementation of IFRS 9- Financial Instruments to the companies to clarify, how the pandemic affects the expected credit losses (ECL) accounting.

• The document reinforces that IFRS 9- Financial Instruments does not provide bright lines nor a mechanistic approach in accounting for ECLs. Accordingly, companies may need to adjust their approaches to forecasting and determining when lifetime losses should be recognized to reflect the current environment.

• IFRS 9 requires number of assumptions and linkages underlying the way ECLs have been implemented to date may no longer hold in the current environment. Entities should not continue to apply their existing ECL methodology mechanically.

• The assessment of SICRs and the measurement of ECLs are required to be based on reasonable and supportable information that is available to an entity without undue cost or effort.

• Entities are required to develop estimates based on the best available information about past events, current conditions and forecasts of economic conditions. In assessing forecast conditions, consideration should be given both to the effects of covid-19 and the significant government support measures being undertaken.

• If the effects of covid-19 cannot be reflected in models, post-model overlays or adjustments will need to be considered.

• If ECL estimates are based on reasonable and supportable information and IFRS 9  is not applied mechanistically, useful information can be provided about ECLs for more transparency to users.