SLFRS 9 – FINANCIAL INSTRUMENTS – IMPAIRMENT

FINANCIAL-INSTRUMENTS-–-IMPAIRMENT-IN-SRI-LANKA

SLFRS 9: Financial Instruments is effective for the accounting periods beginning on or after January 01, 2018. SLFRS 9 replaces the impairment model for financial instruments from “Incurred Loss Model” in LKAS 39, to “Expected Credit Loss Model” which relates to assessing significant credit risk of financial instruments.

Expected Credit Loss Model is required to measure, whether the significant credit risk of financial instrument in Sri Lanka has increased since initial recognition at end of each reporting date. The model takes into account the reasonable and supportable forward-looking information without undue cost or effort when making the assessment of significant credit risk. In making the assessment, the changes in the default risk occurring over the expected life of the financial instrument is considered while comparing with the default risk as at the initial recognition.

However, the past due status also can be used to determine the credit risk, if forward-looking information are not available. Regardless of the method used to assess the credit risk, there is rebuttable presumption that the credit risk of financial asset has increased significantly when contractual payments are more than 30 days past due, which can be disregarded based on the reasonable information available.

There are three stages of Expected Credit Loss Model on the basis of assessed significant credit risk as follows.

  Stage 01 Stage 02 Stage 03
Criterion   Credit risk has not increased significantly Credit risk has increased significantly Credit risk has increased significantly and objective events have taken place
Model 12-Month Expected Credit Loss Model Lifetime Expected Credit Loss Model Lifetime Expected Credit Loss Model
Allowance Separate impairment allowance account is recognised Separate impairment allowance account is recognised Impairment is deducted from the financial asset
Interest Revenue based on Gross carrying amount of financial asset Gross carrying amount of financial asset Net carrying amount of financial asset
0

Leave a Comment!*

Related Posts

SLFRS 15 – Revenue…

The Institute of Chartered Accountants of Sri Lanka (CASL) published Revenue from contracts with Customers (SLFRS 15) effective as of 1st January 2018. The new standard establishes a comprehensive framework…
Read more

SLFRS 16: The standard…

The Institute of Chartered Accountants of Sri Lanka (CASL) has published SLFRS 16 Leases with an effective date of 1 January 2019. The new standard requires lessees to recognise most…
Read more