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01 March 2011

EFRAG commented on the IASB's Supplementary Document Financial Instruments: Impairment


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EFRAG published the draft comment letter on the IASB's Supplementary Document Financial Instruments: Impairment. Comments are invited by 28 March 2011.


On 31 January 2011, the IASB published the Supplementary Document Financial Instruments: Impairment. The proposals in this supplementary document would be part of the IASB’s project to revise the requirements in IFRSs for accounting for financial instruments. These proposals will be combined with the proposals on amortised cost measurement that were included in the IASB’s original exposure draft after redeliberations on this second phase of the project to replace IAS 39 are completed.
EFRAG welcomes the IASB’s and the FASB’s efforts to develop a common approach to the accounting for the impairment of financial assets. However, EFRAG strongly believes that the converged approach should represent a high-quality proposal and EFRAG remains to be persuaded that the common approach proposed in the Supplementary Document for open portfolio provides an acceptable simplification of the approach that EFRAG supported in its comment letter to the November 2009 proposals.
In particular, EFRAG believes that an impairment model should reflect the link between the pricing of the asset and the expected credit losses, and EFRAG has a number of concerns on the use of the floor and the concept of "foreseeable future." EFRAG understands that the IASB approach to the "decoupling" (i.e. without a floor) does not take account of front-loaded loss emergence patterns and EFRAG agrees that the approach should be modified to mitigate the risk of inadequate provision balances for such portfolios. However, EFRAG does not believe that a floor is the only way to deal with this issue. Therefore, EFRAG encourages the IASB to explore alternative approaches that take account of all available information in the determination of the allowance. 

Press release


© EFRAG - European Financial Reporting Advisory Group


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