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While EFRAG conceptually supported the integrated effective interest rate approach in the 2009 Exposure Draft and the time proportionate approach in the Supplementary Document, EFRAG acknowledges the significant operational concerns expressed by constituents regarding the implementation of those earlier approaches.
EFRAG believes that the recognition of a portion of expected credit losses at initial recognition is not conceptually sound. However, in the absence of a better model, the IASB should finalise its impairment requirements having this approach as a basis. EFRAG accepts the proposed approach because it will result in a more timely recognition of expected credit losses, and hence addresses that weakness of an incurred loss model in a pragmatic way. EFRAG’s preliminary assessment is that the proposed approach strikes an acceptable balance between the cost of implementation and the underlying economics, while meeting the need to provide earlier for expected credit losses.
EFRAG understands that any impairment model – such as the model proposed by the FASB – that uses a single measurement approach that recognises lifetime expected credit losses from initial recognition would not be less subjective and not necessarily operationally simpler compared to the proposed approach in the ED. EFRAG believes that such an approach does not result in an appropriate balance between the representation of the underlying economics and the cost of implementation, and would provide less relevant information about the effects of changes in the credit quality subsequent to initial recognition.