Impairment model for different categories of financial assets
Is the impairment model different for different categories of financial assets?
No. Ind AS 109 has a single impairment model that applies to all financial instruments within its scope. As per the previous version of IFRS 9, viz, IAS 39, there were different models for assets classified as held-to-maturity, available-for-sale debt instruments and available for sale equity instruments and equity instruments measured at fair value through profit or loss. Impairment on account of loan commitments and financial guarantee contracts were accounted for under IAS 37.
However, the impairment loss now is aligned with the credit risk on loans and other financial guarantees thereby creating uniformity for accounting purposes as well. As per Ind AS 109, financial assets classified as FVOCI and financial assets classified as at amortised cost are treated in the same way for the purpose of applying the impairment model.
Investments in equity instruments that are measured either at FVTPL or FVOCI are now outside the scope of Ind AS 109. Accordingly, the equity investments are not tested for impairment any longer. The concept of recognising the impairment loss when the equity investments are subject to significant or prolonged decline in their fair value is now not relevant. This has been criticised on the ground that the test of other than temporary impairment (OTTI) is difficult to apply in practice.
