Expected Credit Loss Under IFRS-9 and Impact of COVID-19

ABSTRACT

Implementation of new impairment model of IFRS-9 needs to estimate Expected Credit Loss (ECL) for valuation of financial instruments. The whole process of estimating credit risk and calculating of impairment requires in developing of the internal IFRS-9 model and methodology. According to IFRS-9, reporting value of the financial instruments must be presented on the balance sheet only after considering the ECL. Under the general approach, ECL considers the forward looking scenario, along with the past and present records, which entails macro economic factors. The recent Corona Virus Disease-19 (COVID-19) pandemic has significantly affected the economy at the macro level in general and the individual business entities at the micro level in particular. Thus post impact of COVID-19 on ECL is unavoidable. The paper attempts to explore how in accounting the ECL deals with the impact of COVID-19 in respect of valuation of the financial instruments at the date of reporting and disclosure of a business entity. The study incorporates qualitative as well as quantitative analysis. The novelty of the study infers some major findings. The study suggests that the COVID-19 outbreak has a significant impact on the calculation of 'Expected Credit Loss' (ECL).