IFRS 9 Expected Credit Loss Expense Classification
Posted: 10 Jul 2022, 22:33
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!
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!