Impairment for financial assets

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. The International Accounting Standards Board (IASB) has published a proposal for a new accounting model for impairment of financial assets. Currently IAS 39, Financial Instruments: Recognition and Measurement, states that a financial instrument is impaired and impairment losses are incurred if a loss event occurred and this loss event had a reliably measurable impact on the future cash flows. Which of the following approaches is the recommended new accounting model for impairment of financial assets?

  2. In 2009, the IASB published an ED which proposed adjusting for expected credit losses through adjusting the effective interest rate of a financial instrument. What was the reasoning behind this proposal?

  3. In 2011, the IASB and the FASB issued a joint supplement which proposed removing interest adjustment from the recognition of impairments and since then, the bodies have used this approach, which is the basis of the current ED. However,the FASB have recently published its own proposed model. What is the key difference between the IASB's proposals and those of the FASB?

  4. The IASB proposals require the recognition of expected credit losses for certain financial assets by creating an allowance/ provision based on either 12-month or lifetime expected credit losses. What is the likely result of this proposal?

  5. The ED applies to various financial assets measured at amortised cost and at fair value through other comprehensive income under IFRS 9 Financial Instruments. Which of the following financial instruments does the ED not apply to?

  6. The impairment amount recognised depends on whether or not the financial instruments have significantly deteriorated since their initial recognition. The ED describes three stages. Which of the following is not a stage described in the ED?

  7. The ED proposes a simplified approach for trade receivables which will apply to trade receivables that do not constitute a financing transaction. Which of the following is not a policy choice for trade receivables?

  8. In the case of purchased or originated credit-impaired financial assets, the ED states that rather than apply the two-stage approach, changes in lifetime expected credit losses since initial recognition are recognised directly in profit or loss. A credit loss allowance is not recognised on initial recognition. Why is a credit loss allowance not recognised on initial recognition?

  9. How are expected credit losses determined under the ED?

  10. The ED sets out the specific approaches, which should be used to estimate expected credit losses, but stresses that the certain factors should be taken into account. Which of the following factors would not be taken into account when estimating credit losses?