GENERALIZATION AND SYSTEMATIZATION OF APPROACHES IN RELATION TO IMPAIRMENT OF FINANCIAL ASSETS
Journal Title: Держава та регіони. Серія: Економіка та підприємництво - Year 2018, Vol 6, Issue 105
Abstract
One of the most important factors in the study of the financial market, as well as the object of accounting, is financial instruments. In 2014, the International Accounting Standards Board issued the final version of IFRS 9 Financial Instruments, which completely replaced IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 proposed a new model for the impairment of financial assets of companies. This is primarily related to the fact that the cost model presented in IAS 39 contributed to the deferred recognition of credit losses and, as a consequence, new impairment claims appeared in IFRS 9 Financial Instruments based on a prospective model for recognizing credit losses – the model of “expected credit losses.” In general, IFRS 9 states that when applying a single model of “expected credit losses,” the company should apply one of the following approaches, namely: • a general approach that is used to most loans and debt securities; • a simplified approach – to trade receivables, receivables for lease, and contract assets. The general approach requires recognizing expected credit losses over the life of the financial asset and updating the amount of possible credit losses for each reporting date, which will provide more timely information to investors, users, and owners of companies. Expected credit losses are the estimated amount of credit losses, estimated by the degree of probability of their occurrence during the expected life of the financial asset. An assessment of a significant increase or decrease in the credit risk of a financial asset is a decisive factor in the transition from the requirements for determining expected credit losses for 12 months or for the entire duration of the instrument. In order to assess whether the credit risk of a financial asset has increased significantly, the company should compare the default risk at the reporting date with the default risk at the time of its initial recognition. The simplified approach does not require tracking changes in credit risk, however, along with this, recognition of impairment losses should be assessed on the basis of expected credit losses over the life of the financial asset at each reporting date. The company should apply a simplified approach to trade receivables or contractual assets that do not include a significant component of financing. Therefore, IFRS 9 Financial Instruments provides a clear procedure for assessing and recognizing possible credit losses. The updated standard facilitates its practical application and provides a sound approach to the issue of financial instruments impairment.
Authors and Affiliations
N. M. Sokolova
Keywords
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