Measurement of expected credit losses

The IFRS IC was asked to clarify whether a financial guarantee or other credit enhancement should be taken into account in the measurement of expected credit losses on the asset to which it relates. The request related to situations in which the credit enhancement must be recognised separately under IFRSs.

Keywords: Mazars, Thailand, IFRS, IFRS IC, IFRS 9

9 May 2019

The IFRS IC referred back to paragraph B5.5.55 of IFRS 9, which states that a financial guarantee or other credit enhancement may only be included in the measurement of expected credit losses if it is both:

  • part of the contractual terms of the asset in question; and
  • not recognised separately.

Thus, the IFRS IC concluded that IFRS 9 is already sufficiently clear with regard to this situation. As the credit enhancement is already recognised in the balance sheet under the applicable standard, it shall not be taken into account when measuring expected credit losses on the asset to which it relates. Otherwise, this would run the risk of ‘double counting’ of these contractual rights.

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