Write-offs
–
–
(X) (X)
Changes in models/risk parameters X
X
X
X
Foreign exchange and other movements
X
X
X
X
Loss allowance as at 31 December
X
X
X
X
Significant changes in the gross carrying amount of mortgage loans that contributed to changes in the loss
allowance were:
• The acquisition of the ABC prime mortgage portfolio increased the residential mortgage book by x per
cent, with a corresponding increase in the loss allowance measured on a 12-month basis.
• The write off of the CUXX DEF portfolio following the collapse of the local market reduced the loss
allowance for financial assets with objective evidence of impairment by CUX.
• The expected increase in unemployment in Region X caused a net increase in financial assets whose loss
allowance is equal to lifetime expected credit losses and caused a net increase of CUX in the lifetime
expected credit losses allowance.
The significant changes in the gross carrying amount of mortgage loans are further explained below:
Financial
instruments:
Presentation and disclosure 4203
Mortgage loans – gross carrying amount
12-month
Lifetime
Lifetime
Credit
expected
expected expected credit
impaired
credit losses
credit losses
losses
financial
(collectively
(individually
assets
assessed)
assessed)
(lifetime
expected
credit
losses)
CU’000
Gross carrying amount as at 1 January
X
X
X
X
Individual financial assets transferred to
(X)
–
X
–
lifetime expected credit losses
Individual financial assets transferred to credit-
(X)
–
(X) X
impaired financial assets
Individual financial assets transferred from
X
–
X
(X)
credit-impaired financial assets
Financial assets assessed on collective basis
(X)
X
–
–
New financial assets originated or purchased
X
–
–
–
Write-offs
–
–
(X) (X)
Financial assets that have been derecognised
(X)
(X)
(X)
(X)
Changes due to modifications that did not result
(X)
–
(X) (X)
in derecognition
Other changes
X
X
X
X
Gross carrying amount as at 31 December
X
X
X
X
Where the loss allowance for trade receivables or lease receivables is measured using a
simplified approach based on lifetime expected credit losses, the information about
modifications need be given only if those financial assets are modified while more than
30 days past due. [IFRS 7.35A(a)].
To provide an understanding of the effect of collateral and other credit enhancements
on the amounts arising from expected credit losses, the following should be disclosed
by class of financial instrument: [IFRS 7.35K]
• the amount that best represents the maximum exposure to credit risk at the end of
the reporting period without taking account of any collateral held or other credit
enhancements (e.g. netting agreements that do not qualify for offset in accordance
with IAS 32);
• a narrative description of collateral held as security and other credit
enhancements, including:
• a description of the nature and quality of the collateral held;
• an explanation of any significant changes in the quality of that collateral or
credit enhancements as a result of deterioration or changes in the entity’s
collateral policies during the reporting period; and
• information about financial instruments for which a loss allowance has not
been recognised because of the collateral.
4204 Chapter 50
This might include information about: [IFRS 7.B8G]
• the main types of collateral held as security and other credit enhancements,
examples of the latter being guarantees, credit derivatives and netting
agreements that do not qualify for offset in accordance with IAS 32;
• the volume of collateral held and other credit enhancements and its
significance in terms of the loss allowance;
• the policies and processes for valuing and managing collateral and other credit
enhancements;
• the main types of counterparties to collateral and other credit enhancements
and their creditworthiness; and
• information about risk concentrations within the collateral and other credit
enhancements; and
• quantitative information about the collateral held as security and other credit
enhancements, e.g. quantification of the extent to which collateral and other credit
enhancements mitigate credit risk, on financial assets that are credit-impaired at
the reporting date.
Disclosure of information about the fair value of collateral and other credit
enhancements is not required, nor is a quantification of the exact value of the
collateral included in the calculation of expected credit losses (i.e. the loss given
default). [IFRS 7.B8F]. Further, these requirements do not apply to lease receivables.
[IFRS 7.35A(b)].
For a financial asset, the maximum exposure to credit risk is typically the gross carrying
amount, net of any amounts offset in accordance with IAS 32 and any impairment losses
recognised in accordance with IFRS 9. [IFRS 7.B9]. Activities that give rise to credit risk
and the associated maximum exposure to credit risk include, but are not limited to:
[IFRS 7.B10]
• granting loans to customers and placing deposits with other entities. In these
cases, the maximum exposure to credit risk is the carrying amount of the related
financial assets;
• entering into derivative contracts, e.g. foreign exchange contracts, interest rate
swaps and purchased credit derivatives. When the resulting asset is measured at
fair value, the maximum exposure to credit risk at the reporting date will equal the
carrying amount;
• granting financial guarantees. In this case, the maximum exposure to credit
risk is the maximum amount the entity could have to pay if the guarantee is
called on, which may be significantly greater than the amount recognised as a
liability; and
Financial
instruments:
Presentation and disclosure 4205
• making a loan commitment that is irrevocable over the
life of the facility or is
revocable only in response to a material adverse change. If the issuer cannot settle
the loan commitment net in cash or another financial instrument, the maximum
credit exposure is the full amount of the commitment. This is because it is uncertain
whether the amount of any undrawn portion may be drawn upon in the future. This
may be significantly greater than the amount recognised as a liability.
The contractual amount outstanding on financial assets that were written off during the
reporting period and which are still subject to enforcement activity should be disclosed.
[IFRS 7.35L].
5.3.4
Credit risk exposure
Users should be able to assess an entity’s credit risk exposure and understand its
significant credit risk concentrations. Therefore, an entity should disclose, by ‘credit
risk rating grades’ (see below), the gross carrying amount of financial assets and the
exposure to credit risk on loan commitments and financial guarantee contracts. This
information should be provided separately for financial instruments: [IFRS 7.35M]
• for which the loss allowance is measured at an amount equal to 12-month expected
credit losses;
• for which the loss allowance is measured at an amount equal to lifetime expected
credit losses and that are:
• financial instruments for which credit risk has increased significantly since
initial recognition but are not credit-impaired financial assets;
• financial assets that are credit-impaired at the reporting date (but were not
credit-impaired when purchased or originated); and
• trade receivables, contract assets or lease receivables for which the loss
allowances are measured using a simplified approach based on lifetime
expected credit losses. Information for these assets may be based on a
provision matrix; [IFRS 7.35N] and
• that are financial assets (or, potentially, loan commitments or financial
guarantee contracts – see Chapter 47 at 11) that were credit-impaired when
purchased or originated.
These disclosures should distinguish between financial instruments for which the loss
allowance is equal to 12-month or lifetime expected credit losses even where the
maturity of a financial instrument is twelve months or less in spite of the fact that the
loss allowance should be the same under either approach.7
The following examples illustrate how this information might be presented.
[IFRS 7.IG20C, 20D].
4206 Chapter 50
Example 50.6: Information about credit risk exposures and significant credit risk
concentrations
Consumer loan credit risk exposure by internal rating grades
20XX Consumer–credit card
Consumer–automotive
CU’000
Gross carrying amount
Gross carrying amount
Lifetime
12-month
Lifetime
12-month
Internal Grade 1-2
X
X
X
X
Internal Grade 3-4
X
X
X
X
Internal Grade 5-6
X
X
X
X
Internal Grade 7
X
X
X
X
Total
X
X
X
X
Corporate loan credit risk profile by external rating grades
20XX Corporate–equipment
Corporate–construction
CU’000
Gross carrying amount
Gross carrying amount
Lifetime
12-month
Lifetime
12-month
AAA-AA
X
X
X
X
A
X
X
X
X
BBB-BB
X
X
X
X
B
X
X
X
X
CCC-CC
X
X
X
X
C
X
X
X
X
D
X
X
X
X
Total
X
X
X
X
Corporate loan risk profile by probability of default
20XX Corporate–unsecured
Corporate–secured
CU’000
Gross carrying amount
Gross carrying amount
Lifetime
12-month
Lifetime
12-month
0.00-0.10
X
X
X
X
0.11-0.40
X
X
X
X
0.41-1.00
X
X
X
X
1.01-3.00
X
X
X
X
3.01-6.00
X
X
X
X
6.01-11.00
X
X
X
X
11.01-17.00
X
X
X
X
17.01-25.00
X
X
X
X
25.01-50.00
X
X
X
X
50.00+
X
X
X
X
Total
X
X
X
X
Financial
instruments:
Presentation and disclosure 4207
Example 50.7: Information about credit risk exposures using a provision matrix
The reporting entity manufactures cars and provides financing to both dealers and end customers. It discloses
its dealer financing and customer financing as separate classes of financial instruments and applies the
simplified approach to its trade receivables so that the loss allowance is always measured at an amount equal
to lifetime expected credit losses. The following table illustrates the use of a provision matrix as a risk profile
disclosure under the simplified approach:
20XX
Trade receivables days past due
CU’000
Dealer financing
Current
More than
More than
More than
Total
30 days
60 days
90 days
Expected credit
loss rate
0.10%
2%
5%
13%
Estimated total gross
CU20,777
CU1,416
CU673
CU235 CU23,101
carrying amount at
default
Lifetime expected
CU21 CU28
CU34
CU31 CU114
credit losses – dealer
financing
Customer financing
Expected credit loss
rate 0.20%
3%
8%
15%
Estimated total gross
CU19,222
CU2,010
CU301
CU154 CU21,687
carrying amount at
default
Lifetime expected
CU38 CU60
CU24
CU23 CU145
credit losses –
customer financing
Credit risk rating grades are defined as ratings of credit risk based on the risk of a default
occurring on the financial instrument. [IFRS 7 Appendix A]. The number of credit risk rating
grades used to disclose the information above should be consistent with the number that the
entity reports to key management personnel for credit risk management purposes. If past due
information is the only borrower-specific information available and past due information is
used to assess whether credit risk has increased significantly since initial recognition, an
analysis by past due status should be provided for that class of financial assets. [IFRS 7.B8I].
When expected credit losses are measured on a collective basis, it may not be possible
to allocate the gross carrying amount of individual financial assets or the exposure to
credit risk on loan commitments and financial guarantee contracts to the credit risk
rating grades for which lifetime expected credit losses are recognised. In that case, the
disclosure requirement above should be applied to those financial instruments that can
be directly allocated to a credit risk rating grade and separate disclosure should be given
of the gross carrying amount of financial instruments for which lifetime expected credit
losses have been measured on a collective basis. [IFRS 7.B8J].
A concentration of credit risk exists when a number of counterparties are located in a
geographical region or are engaged in similar activities and have similar economic
characteristics that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions. Information should be provided to
enable users to understand whether there are groups or portfolios of financial instruments
4208 Chapter 50
with particular features that could affect a large portion of that group of financial
instruments, such as concentration to particular risks. This could include, for example,
loan-to-value groupings, geographical, industry or issuer-type concentrations. [IFRS 7.B8H].
For financial instruments within the scope of IFRS 7 to which the impairment requirements
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 833
