Overview

BCE.90 During the global financial crisis, the delayed recognition of credit losses on loans and other financial instruments was identified as a weakness in the existing accounting standards. Specifically, concerns were raised about the timeliness of recognising credit losses because the existing ‘incurred loss’ model in IAS 39 delays the recognition of credit losses until there is evidence of a credit loss event. The Financial Crisis Advisory Group (FCAG) and others recommended exploring alternatives to the incurred loss model that would use more forward-looking information.

BCE.91 The complexity of having multiple impairment models for financial instruments was also identified as a major concern.

BCE.92 The impairment requirements in IFRS 9 are the IASB’s response to the need to improve the accounting for impairment for financial instruments and to remove the complexity of multiple impairment models. The IASB believes that the new impairment requirements address the issue of delayed recognition of credit losses and the complexity of multiple impairment models for financial instruments.

BCE.93 Overall, the IASB’s assessment is that the impairment requirements will bring significant and sustained improvements to the reporting of financial instruments because:

(a) the same impairment model applies to all financial instruments within the scope of IFRS 9 that are subject to impairment accounting. This removes a major source of current complexity.