ECL-Related Companies from Russia

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stella
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ECL-Related Companies from Russia

Post by stella »

We are performing the audit of a Cypriot Company for the year ended 31.12.2021.
Company has loans receivables from Related Companies in Russia and from its UBOs .
Company recognised ECL charge on these loans considering the credit rating for Russia as at 31.12.2021.
Do i have to consider that at the current stage there is not a credit rating for Russia (due to war) and so to adjust for a 100% ECL on these loans?
JRSB
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Re: ECL-Related Companies from Russia

Post by JRSB »

Can you even receive funds from Russia?
stella
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Re: ECL-Related Companies from Russia

Post by stella »

Company has account in a Russian bank in which received some money (post year end) -not the whole amounts!
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JakobLavrod
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Re: ECL-Related Companies from Russia

Post by JakobLavrod »

The assessment of ECL at year-end 31.12.2021 should be based on information existing at year-end. So one should not make sure of the actual outcome right now. I do not work with these types of cooperate loans, but the approach of using the credit ratings seems reasonable, conditional that these incorporate forward-looking information, but it would be interesting if someone else has some alternative view :)
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JRSB
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Re: ECL-Related Companies from Russia

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they built up troops at the border from Oct 21? but you've said they're performing even now (to some extent) so presumably a sensible ecl was in order at that year end. are your accounts not late...?
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Marek Muc
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Re: ECL-Related Companies from Russia

Post by Marek Muc »

Jakob has a valid point, ECL should measured as at 31.12.2021 and the developments after 31.12.2021 are non-adjusting events that need to be disclosed in the notes only. Just look at the financial markets at 31.12.2021, the likelihood of war that was priced in was low IMO
stella
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Re: ECL-Related Companies from Russia

Post by stella »

Thanks a lot!!! I got the point!
stella
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Re: ECL-Related Companies from Russia

Post by stella »

But , what about 31.12.2022? An Impairment based on the credit rating as at 31.12.2021 is not reasonabe and there is no credit rating at the moment for Russia. So, 100% impairment for loas receivable to Russian Companies would be reasonable?
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Marek Muc
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Re: ECL-Related Companies from Russia

Post by Marek Muc »

The fact that there's no credit rating does not imply a 100% impairment. What's the assessment of the lender in terms of the possibility to recover the loan?
stella
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Re: ECL-Related Companies from Russia

Post by stella »

The loan is receivable for many years. Every year they prolong loans repayment date.
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JakobLavrod
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Re: ECL-Related Companies from Russia

Post by JakobLavrod »

Is the loan currently in default? Do you have price quotes on distress debt purchase. If the loan is in the default and you have a price offer of p, then LGD = 1 - p (if carrying value = face value of the loan) is a reasonable estimate, so ECL = Carrying value - p*Face value.
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