The Future Of Measuring Expected Credit Loss - 1919 Words

Option #1: The Future of Measuring Expected Credit Loss Introduction Global accounting standard setter joined hands to work in a coordinated manner to achieve the goal of creation of single set of accounting standards. Thus, IASB and FASB in response to the issues arisen due to the financial crisis started development of new set of standards. They decided to replace IAS 39 by and built and sub divided the project into three phases: 1) Classification and measurement. 2) Impairment 3) Hedging Both the boards delivered quite some aspect of the project but a converged standard could not be achieved. Due to lack of enough support in terms of difference in jurisdiction and regulatory environment, the IASB and FASB could not work together and IASB decided to go with the forward looking impairment model. The board proposed the applicability of expected credit loss model to the financial instruments which are subject to impairment accounting. Affected Entities All entities that hold financial assets or commitments to extend credit that are not accounted for at fair value through profit or loss The model would apply to: †¢ Financial assets that include assets measured at amortized cost, or at fair value. †¢ Trade receivables †¢ Lease Receivables †¢ Loan Commitments †¢ Financial guarantee contracts The main weakness in the current accounting standards was the delayed recognition of credit losses on loans. The existing model called the incurred model lead to delay in recognition of lossShow MoreRelatedRisk Management Is Not Avoiding Or Eliminating Risk Essay1622 Words   |  7 Pageshedge. Risk management prevents an organization from suffering unacceptable loss that can cause failure or can materially damage its competitive position. Risk management should be a continuous and developing process which runs throughout the organization‟s strategy and the implementation of that strategy. 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