01 July 2015

Nine lives

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. A considerable amount of judgment will be required when assessing ECLs under this approach

  2. At each reporting date, an entity must make an assessment of the credit risk attached to a financial instrument. Where there has not been a significant increase in the credit risk since initial recognition, what is the entity is required to do?

  3. Normally, a financial instrument would have a significant increase in credit risk before there is objective evidence of impairment or before a default occurs. Before a financial asset is regarded as credit-impaired or in default, what does the standard expect to have happened?

  4. One approach to impairment has been termed the simplified approach. This approach is used when accounting for trade receivables or contract assets which fall within the scope of IFRS 15 Revenue from Contracts with Customers and that do not contain a significant financing component. What are the main elements of this approach?

  5. Where a financial asset subsequently becomes credit-impaired how is interest revenue calculated?

  6. Where the financial asset is not a purchased or originated credit-impaired asset or has not become credit impaired since initial recognition, but may have had a significant increase in credit risk since initial recognition, how is interest revenue calculated?

  7. The purpose of the ECL model is to reflect the general pattern of deterioration or improvement in the credit quality of financial instruments. The loss allowance or provision recognised is based upon the credit deterioration since initial recognition. What is the definition of lifetime ECL?

  8. At each reporting date, an entity must make an assessment of the credit risk attached to a financial instrument. Where there has been a significant increase in the credit risk since initial recognition, what is the entity is required to do?

  9. The entity is required to follow one of three approaches outlined in the standard. If an entity uses the general approach, a loss allowance should be recognised at each reporting date, based on either 12 month ECLs or lifetime ECLs. What is this approach dependent upon?

  10. Where there has been a significant increase in credit risk since initial recognition, the entity should calculate a loss allowance. If the credit quality of the financial instrument improves in future periods and there is no longer a significant increase in credit risk since initial recognition,what is the entity required to do?

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