Impact of impairment requirements on first-time adoption

Impact of impairment requirements on first-time adoption

How do the impairment requirements impact on first-time adoption?

  • An entity shall apply the impairment requirement retrospectively.
  • At the date of transition to Ind ASs, an entity shall use reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised (or for loan commitments and financial guarantee contracts the date that the entity became a party to the irrevocable commitment and compare that to the credit risk at the date of transition to Ind ASs.
  • An entity should seek to approximate the credit risk on initial recognition by considering all reasonable and supportable information that is available without undue cost or effort. An entity is not required to undertake an exhaustive search for information when determining, at the date of transition to Ind ASs, whether there have been significant increases in credit risk since initial recognition. If an entity is unable to make this determination without undue cost or effort.
  • In order to determine the loss allowance on financial instruments initially recognised (or loan commitments or financial guarantee contracts to which the entity became a party to the contract) prior to the date of initial application, both on transition and until the derecognition of those items, an entity shall consider information that is relevant in determining or approximating the credit risk at initial recognition. In order to determine or approximate the initial credit risk, an entity may consider internal and external information, including portfolio information.
  • When determining whether there has been a significant increase in credit risk since initial recognition, an entity may apply the rebuttable presumption for contractual payments that are more than 30 days past due if an entity will apply the impairment requirements by identifying significant increases in credit risk since initial recognition for those financial instruments on the basis of past due information.
  • If, at the date of transition to Ind ASs, determining whether there has been a significant increase in credit risk since the initial recognition of a financial instrument would require undue cost or effort, an entity shall recognise a loss allowance at an amount equal to lifetime expected credit losses at each reporting date until that financial instrument is derecognised (unless that financial instrument is low credit risk at a reporting date.

Ind AS Accounting Standards

Ind AS Accounting Standards

Key takeaways from the RBI notification dated 12th Nov 2021

How is the expected credit loss measured

Treatment of collateral value for expected credit losses

What are the three stages of impairment loss

Simplified Approach for ECL for trade receivables

Recognition of interest revenue during all three stages

What is meant by significant increase in credit risk

Approaches for assessing credit risk

What is the new Expected Credit Loss Model

Presentation of impairment loss for debt instruments at FVOCI

Impairment loss allowance on performing assets

Impairment for debt instruments classified as FVOCI

New impairment methodology