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. 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?

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

  3. 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?

  4. 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?

  5. 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?