Background
Objectives for depicting expected credit losses
BC5.82 For financial assets measured at amortised cost and debt instruments measured at fair value through other comprehensive income the effect of changes in credit risk are more relevant to an investor’s understanding of the likelihood of the collection of future contractual cash flows than the effects of other changes, such as changes in market interest rates. This is because an integral aspect of both business models is to collect contractual cash flows.
BC5.83 The IASB noted that a model that faithfully represents the economic phenomenon of expected credit losses should provide users of financial statements with relevant information about the amount, timing and uncertainty of an entity’s future cash flows. It should also ensure that the amounts that an entity reports are comparable, timely and understandable. Furthermore, the IASB also sought to ensure that the model address the criticisms of the incurred loss model in
…