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IFRS 9 Lifetime Expected Credit Loss Recognition and Reversal

Article Quant Q&A · Author: adrCoder
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Summary

The document addresses how a lifetime expected credit loss estimate should be allocated across future reporting quarters. The question asks whether a multi-year estimate should simply be divided evenly among the quarters, but the supplied answer does not give a quarterly allocation method or a calculation procedure.

Its main point is about recognition timing under IFRS 9: risk provisions are booked when recognized, and the provision can later be reversed if circumstances warrant. This distinguishes accounting recognition from mechanically spreading a total loss estimate over time. The answer is very brief and does not explain staging, probability-of-default term structures, loss given default, exposure profiles, or how to calculate periodic impairment amounts, so it provides only limited guidance for implementing a lifetime ECL model.

Key ideas

  • The question concerns allocation of a lifetime expected credit loss across reporting periods.
  • The answer says risk provisions are recognized immediately when required.
  • Recognized provisions may later be reversed when appropriate.
  • The response does not specify a quarterly allocation formula or detailed ECL calculation method.

Tags

Risk managementStatisticsFixed income
Full text
# IFRS9 - Lifetime Expected Credit Losses (ECL) Probability of Default (PD) - how do they get distributed in quarters?


# IFRS9 - Lifetime Expected Credit Losses (ECL) Probability of Default (PD) - how do they get distributed in quarters?












Let's assume we calculate a Lifetime ECL of 5 years. How do we then distribute the expected losses in each of the following 20 quarters? Do we just divide the lifetime ECL by 20 and calculate the impairments for every quarter?

## Answer by user51037 (score 2)

https://quant.stackexchange.com/a/59570

In accordance with IFRS 9, risk provisions must be recognised immediately and are booked immediately.It can then be reversed later if necessary.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.