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EFRAG supports the IASB’s decision to carry out the IAS 39 replacement project, and in particular to review the Incurred Loss Model in the context of other impairment approaches.
Our initial view is that implementation of an Expected Cash Flow Approach will involve significant operational challenges in Europe, such as the need for systems changes and new control processes over an increased use of management judgement involved in estimating future cash flows, and the lack of relevant historical data.
Given the operational challenges involved with the Expected Cash Flow Approach we think care needs to be taken to ‘get the requirements right’ at the outset, so that further expensive changes are not required later. For example, we think the IASB needs to consider the implications of the model for all preparers, not just financial institutions. This is important because we do not believe the Expected Cash Flow Approach fits well within the context of commercial short-term receivables, and we think the IASB needs to consider simplifications to the model for these types of financial asset.
We commend the IASB for seeking such advice early in the development of these proposals. We consider that this type of request is in line with the IASB’s commitment to prepare and publish impact assessments for all new accounting standards. We urge the IASB to continue to canvas views broadly and to develop any proposals on loan loss provisioning carefully to ensure that the benefits of any final amendment outweigh potentially significant costs to preparers. |
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