In February 2015, the Basel Committee on Banking Supervision (the Committee) issued a consultative document entitled Guidance on accounting for expected credit losses (the CD) that outlined supervisory expectations regarding sound credit risk practices associated with implementing and applying an expected credit loss (ECL) accounting framework.
The CD largely retained the Committee’s previous principles on sound credit risk assessment and valuation of loans (SCRAVL) that were issued in 2006, but was revised to reflect the move from an incurred loss to an ECL accounting model. This followed the publication of IFRS 9 Financial Instruments by the International Accounting Standards Board (IASB), application of which is mandatory for financial years beginning on or after 1 January 2018.
Please refer to our IFRS Developments Issue 100, Basel Committee proposes guidance on accounting for expected credit losses. The final version, titled Guidance on credit risk and accounting for expected credit losses (G-CRAECL or Guidance) was issued in December 2015. Its main messages do not differ significantly from the CD and most of the amendments have been to structure and language. Representatives of the IASB have been provided with the opportunity to comment on the Guidance and have not identified any aspects of it that would prevent compliance with IFRS 9.
What you need to know
To see our take on the latest announcement, please click the link below for EY’s summary document.