Expected vs. Incurred Loss Models

On November 5, the International Accounting Standards Board issued an exposure draft on the amortized cost measurement and impairment of financial instruments. The exposure draft proposes an expected loss model for recognizing impairments on financial assets recorded at amortized cost.

As noted in the IASB press release, currently, both U.S. GAAP and IFRS use an incurred loss model for recording impairments on financial assets. Under an incurred loss model, impairments are recognized only after a loss or trigger event is identified. An expected loss model would recognize loss estimates throughout the life of a loan (or portfolios of loans) and other financial assets recorded at amortized cost.

A column in the Financial Times, Beware the ripple effect of accounting losses, warned that the expected loss model would accelerate losses at the beginning of a down cycle and, consequently, still have a pro-cyclical effect. However, the Financial Crisis Advisory Group (FCAG), a group of senior leaders with broad experience in international financial markets, supports exploring alternatives to the incurred loss model, including the expected loss model and a fair value model. The Basel Committee on Banking Supervision released a statement earlier this year calling for accounting changes, including the need for earlier recognition of loan losses to ensure robust provisions.

The FCAG in their July report to the FASB and IASB expressed concern about the risk of earnings management and said the Boards should take care to develop an approach that would not foster earnings management, which would decrease transparency.

Do you believe that a move to an expected loss model and the proposals introduced in the exposure draft would be a move in the right direction? Let us know what you think.

- Paul Parks | www.IFRS.com

Comments

[Magaluf Hotels]

This is a great post, you have written very well. Obtaining this information will prove to be very useful in the near future.

[Cosplay]

What thats mean??

[half marathon training plan]

Nice and informative and educational post and the most interesting and informative post I've ever seen, so the post bookmared my browser for future visits.

[Cosplay costumes]

This is a great post you have written. Having this information will prove to be very useful going forward.

[baby bag]

We depserately needed to modernize our financial system and take the necessary steps to close the gaps in our system and eliminate regulatory arbitrage.

[triathlon wetsuit]

This is my aboriginal time i appointment here. I begin so abounding absorbing being in your blog abnormally its discussion. From the bags of comments on your articles, I assumption I am not the alone one accepting all the amusement here! accumulate up the acceptable work.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[prada handbags]

It’s rather awesome,I have been searching materials relate to these stuffs for my

paper.and it really helps me.Thank you.

[adidas tracksuit]

It’s rather awesome,I have been searching materials relate to these stuffs for my paper.and

it really helps me.Thank you.

[OptionBit]

Well financial reform is here thanks to Dodd and Obama, I'm shorting the market...revised valuations should be interesting to say the least!

[Nike Shox CL]

Because all things are difficult, we must word hard than before, then success will not long away from us.

[Business Gifts]

Let’s end the chase to see who can report future adverse financial results the earliest. Leave this to the investor. It is not the purpose of IFRS to protect the investor from his own responsibility to forsee future events.

[Discount Hotels]

I found this article is necessary for newbie and also for the people from different stage.

[cheap computers canada]

It is very true that what you expect is totally different than incurred losses and as market conditions are very bad all over the world it seems that its better companies should stop bigger predictions.

[Sonia Sultana]

This post is useful for technical knowledge finder so why I will not say the post is one of the best blog post? http://www.xigmapro.com Software is a professional, creative graphic design company that has been very successful in delivering a high quality graphic design and Web Design. Our wide range of service includes [ Website Design ]

[Branding Items]

As article seems informative so blog post added to RSS feed for future needs
http://digitizedlogos.com

[bicycle shoes]

I am glad I found it informative so Site has been added to my RSS feed for later browsing.

[half marathon training schedule]

Ideally before starting a half marathon program, you should have been training for about six months.
Thanks to share this "Expected vs. Incurred Loss Models" topic.

[Beginners training]

Hello! I'd be keen to know whether there are any new views on the subject of replacing the incurred loss model with an expected loss model. Thanks,
http://www.bedbugsbully.com/
bed bug bite