IFRS 9 Expected Credit Loss Expense Classification

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IFRSLearner
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Joined: 09 May 2022, 18:01

IFRS 9 Expected Credit Loss Expense Classification

Post by IFRSLearner »

Hi All,

We have recently calculated for the first time an expected credit loss for trade AR using the simplified method of a provision matrix. Now, comes time to record the entry. I had proposed:

Dr. Expected Credit Loss Expense (to be presented as G&A as we have a functional P&L)
Cr. Expected Credit Loss Provision (to sit contra AR on the balance sheet)

I am being challenged that the Dr should be to Revenue... I do not believe this is correct as trade AR is recorded at the transaction amount, and we have already gone through the rev rec criteria to record the revenue initially, and the IFRS 9 requirement to record an ECL stems from an issue of impairment to AR and is not related to revenue rec. Problem, I can find where it is written in guidance that the DR for expected credit loss expense is an expense item (vs reduction of revenue) does anyone have an idea of a standard or where I can back my position up with? Or am I missing something that this should be a reduction of revenue?? When I review the guidance on IFRS 9 here and on all the big 4 websites it is from the perspective of how and why to calculate the amount, but not how to record it.

Thanks so much!
Leo
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by Leo »

Who challenged you that this should be in reduction of revenue?
IFRSLearner
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Joined: 09 May 2022, 18:01

Re: IFRS 9 Expected Credit Loss Expense Classification

Post by IFRSLearner »

internal team review.
Leo
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Joined: 05 Apr 2020, 22:31

Re: IFRS 9 Expected Credit Loss Expense Classification

Post by Leo »

Lol
IFRSLearner
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by IFRSLearner »

I know. I am trying to find some guidance I can point to that the expected credit loss expense, is an expense or impairment loss and doesn't touch revenue. I haven't been able to find any explicit guidance per say, except indirectly, in that trade AR is recorded at the exchange amount after the rev rec criteria have been met, then an ECL provision is recorded according to IFRS 9 and is really am impairment loss provision to AR and doesn't impact revenue rec criteria. any thoughts?!
Leo
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by Leo »

Conceptual framework, ias1 maybe?

ECL is a provision by nature, so should be treated as a provision.

Besides, IFRS15 deals with revenue. Not IFRS9

Ask him before ECL, how a provision on AR was presented in the PL? It hasn't changed.
DJP
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by DJP »

you may want to look at paragraph 108 of IFRS 15
JRSB
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by JRSB »

and every worked example you can probably find on the internet
pub_acco
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by pub_acco »

See also Page 16 of https://www.ifrs.org/content/dam/ifrs/p ... tement.pdf

There had been strong opinions to present revenue net of credit risk charges during the standard-setting process, but that approach was finally discarded by the board. ECL charges are generally considered an SG&A item.
Leo
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by Leo »

You guys are so on point
JRSB
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by JRSB »

great find @pub!
pub_acco
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by pub_acco »

;)
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Marek Muc
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Re: IFRS 9 Expected Credit Loss Expense Classification

Post by Marek Muc »

DJP wrote: 11 Jul 2022, 09:26 you may want to look at paragraph 108 of IFRS 15
you don't need to look any further than that!
Upon initial recognition of a receivable from a contract with a customer, any difference between the measurement of the receivable in accordance with IFRS 9 and the corresponding amount of revenue recognised shall be presented as an expense
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