IFRS 9-Expected Credit Losses
IFRS 9-Expected Credit Losses
Hi,
I have one question:
A company has failed to provide the Expected Credit Losses (ECL) of trade receivables in the previous year due to error (because the receivables were reported as sundry receivables and were not considered for ECL assessment in the previous year). In the current year the company has identified those receivables as trade and is about to assess their expected credit losses, is there a need to restate the previous year financial statements for the Expected credit losses of the previous year? I mean is the omission of the assessment for ECL in the previous year an error that needs to be adjusted in the previous year resulting the restatement of the financial statements of the previous year that are included as a comparative to the current year?
I have one question:
A company has failed to provide the Expected Credit Losses (ECL) of trade receivables in the previous year due to error (because the receivables were reported as sundry receivables and were not considered for ECL assessment in the previous year). In the current year the company has identified those receivables as trade and is about to assess their expected credit losses, is there a need to restate the previous year financial statements for the Expected credit losses of the previous year? I mean is the omission of the assessment for ECL in the previous year an error that needs to be adjusted in the previous year resulting the restatement of the financial statements of the previous year that are included as a comparative to the current year?
Re: IFRS 9-Expected Credit Losses
is the loss provision material (ie the figure itself, and/or all the associated disclosure which is presumably missing too)?
Re: IFRS 9-Expected Credit Losses
Yes, it would be material as the omitted trade receivable from the ECL assessment is significant.
Re: IFRS 9-Expected Credit Losses
yes, it's an error warranting a retrospective restatement
but are you sure that this is material? remember that you shouldn't use hindsight, i.e. don't use information that became available this year to assess ECL at previous year-end
how did you conclude that this is material?
https://ifrscommunity.com/knowledge-base/materiality/
but are you sure that this is material? remember that you shouldn't use hindsight, i.e. don't use information that became available this year to assess ECL at previous year-end
how did you conclude that this is material?
https://ifrscommunity.com/knowledge-base/materiality/
Re: IFRS 9-Expected Credit Losses
Thank you.
Very helpful insight.
For the decision to materiality:
The receivables omitted from the ECL assessment remained outstanding for more than a year and as per the provisions policy of the company the ECL in those receivables would be material.
Very helpful insight.
For the decision to materiality:
The receivables omitted from the ECL assessment remained outstanding for more than a year and as per the provisions policy of the company the ECL in those receivables would be material.
Re: IFRS 9-Expected Credit Losses
Makes no sense at all!
Re: IFRS 9-Expected Credit Losses
It doesn't matter for how long these receivables have been outstanding. You can have receivables outstanding for 5 years and they still will be immaterial.
For example, what is the share of this missing ECL charge in net income?
For example, what is the share of this missing ECL charge in net income?
Re: IFRS 9-Expected Credit Losses
They were outstanding for more than a year AS AT the previous year end, or you just know that now?
Re: IFRS 9-Expected Credit Losses
Thank you.
The receivables are significant (they are more than double of the reported trade receivables). Initially they were reported as trade but after their aging the company’s finance manager thinks that they should be reported as sundry, not as trade. To be specific, as at 07 July 2019, the reported trade receivables balance was about USD 605,000, whereas the aged trade receivables (reported under sundry receivables) was about USD 1,000,000. This fact holds true for 2020 and 2021.
On the other hand the company has a policy of providing for ECL up to 9% of the trade receivables remaining uncollected for more than a year.
Even one of the trade receivable is disputed and the legal procedures is still under way.
The receivables are significant (they are more than double of the reported trade receivables). Initially they were reported as trade but after their aging the company’s finance manager thinks that they should be reported as sundry, not as trade. To be specific, as at 07 July 2019, the reported trade receivables balance was about USD 605,000, whereas the aged trade receivables (reported under sundry receivables) was about USD 1,000,000. This fact holds true for 2020 and 2021.
On the other hand the company has a policy of providing for ECL up to 9% of the trade receivables remaining uncollected for more than a year.
Even one of the trade receivable is disputed and the legal procedures is still under way.
Re: IFRS 9-Expected Credit Losses
My understanding from your fact pattern is that your sundry receivables are not subject to ECL. Please note that sundry receivables should also be subject to ECL. Any financial asseat measured at amortised cost is. So yes, if the provision for these receivables according to the ECL model is material, then yes, you have an error in the previous accounts (assuming no provision was recorded at all for these receivables in the previous reporting period).
You should consider applying ECL to all your financial assets at AC in case you don't do so yet.
You should consider applying ECL to all your financial assets at AC in case you don't do so yet.
Re: IFRS 9-Expected Credit Losses
Thank you. Yes, my opinion is also the same as you said regardless of the presentation any asset at amortised cost should be subject to ECL.DJP wrote: ↑25 Oct 2021, 09:51 My understanding from your fact pattern is that your sundry receivables are not subject to ECL. Please note that sundry receivables should also be subject to ECL. Any financial asseat measured at amortised cost is. So yes, if the provision for these receivables according to the ECL model is material, then yes, you have an error in the previous accounts (assuming no provision was recorded at all for these receivables in the previous reporting period).
You should consider applying ECL to all your financial assets at AC in case you don't do so yet.