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Application of IFRS 9 Financial Instruments During COVID-19 Pandemic

The IFRS Foundation published a document entitled “IFRS 9 and COVID-19: Accounting for expected credit losses applying IFRS 9 Financial Instruments in the light of current uncertainty resulting from the COVID-19 pandemic.” It was created to address IFRS 9 application questions during this crisis. The document outlines applicable accounting standards related to expected credit losses (ECL) that may arise during the COVID-19 pandemic.

Of note, the document outlines that extensions of payment holidays to all borrowers in particular classes of financial instruments should not automatically result in all those instruments being considered to have suffered a significant increase in credit risk (SICR). It also notes that it is likely difficult at this time to incorporate the specific effects of COVID-19 and government support measures on a reasonable and supportable basis into expected loss calculations. But the Foundation urges post-model overlays or adjustments to be considered at appropriate times. 

The document suggests the use of “all reasonable and supportable information available” when determining ECL and lifetime losses. It further characterizes IFRS 9 as flexible, suggesting that during these times it may be necessary to adjust “approaches to forecasting and determining when lifetime losses should be recognized to reflect the current environment.” The Foundation also recommends deferring to guidance provided by prudential and securities regulators, including guidance issued by the European Banking Authority, European Central Bank, European Securities and Market Authority, Prudential Regulation Authority and the Malaysian Accounting Standards Board.