Articles on Expected Credit Loss

Expected Credit Loss

Contract 8

Ind AS Accounting Standards

Ind AS (Indian Accounting Standards) are a set of accounting standards developed by the Institute of Chartered Accountants of India (ICAI) and adopted by companies in India for preparing their financial statements. These standards are based on the principles of International Financial Reporting Standards (IFRS) and are intended to improve the comparability and consistency of financial reporting in India. They are applicable to companies that are listed on a stock exchange in India or have a net worth of more than INR 250 crore.
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Rules and regulations 3

Key takeaways from the RBI notification dated 12th Nov 2021

The Reserve Bank of India vide its notification dated 12th Nov 2021 regarding Prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP) pertaining to Advances have provided clarifications which is likely to have a significant impact on the provisioning for all financial institutions including Banks and NBFCs. The notification applies to all lending institutions and issued to clarify and harmonise certain aspects of the extant regulatory guidelines.
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Measurement 3

How is the expected credit loss measured

How is the expected credit loss measured ECL measurement criteria An entity shall measure expected credit losses of a financial instrument in a way that reflects: an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; the time value of money; and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The expected credit losses are calculated based on the present value of all cash shortfalls over the expected life of financial instruments. A cash shortfall is determined as the difference…

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Report 17

Approaches for assessing credit risk

Approaches for assessing credit risk Drivers of expected credit loss The Standard explains that an entity may apply various approaches to determine whether the credit risk on a financial instrument has increased significantly since initial recognition or when measuring expected credit losses. The entity is also allowed to apply different approaches for different financial instruments. The approach should normally include an explicit PD as an entity. However, even where such an input is not included, the approach may still be considered to be as per the requirements of Ind AS 109 provided the entity is able to separate the changes…

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Feedback 1

Simplified Approach for ECL for trade receivables

Simplified Approach for ECL for trade receivables Trade receivables, contract assets & lease receivables An entity shall always measure the loss allowance at an amount equal to lifetime expected credit losses for: (a)  trade receivables or contract assets that result from transactions that are within the scope of Ind AS 115, and that: (i)   do not contain a significant financing component (or when the entity applies the practical expedient for contracts that are one year or less) in accordance with Ind AS 115; or (ii)  contain a significant financing component in accordance with Ind AS 115, if the entity chooses…

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hospital corridor

What is meant by significant increase in credit risk

What is meant by significant increase in credit risk Significant increase in credit risk (SICR) At each reporting date an entity shall assess whether the credit risk on a financial instrument is increased significantly since initial recognition. The entity is required to assess the change in the risk of a default occurred over the expected life of the financial instrument and not the change in the amount of expected credit losses. The effect of this is that the risk of default occurring on the financial instrument as at the reporting date is compared with the risk of default occurring on…

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Mission 1

What is the new Expected Credit Loss Model

A financial asset shall be measured at FVOCI if both of the following conditions are met: (a) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
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