Credit Risk According to IFRS 9: Significant Increase in Credit Risk and Implications for Financial Institutions

7 Pages Posted: 1 Sep 2015

See all articles by Dirk Beerbaum

Dirk Beerbaum

Aalto University - Department of Accounting and Finance

Sammar Ahmad

University of Cologne

Date Written: September 1, 2015

Abstract

This study explores the literature about definitions and concepts when a significant increase in credit risk is achieved. In response to the financial crisis the IASB has introduced a new standard (IFRS 9) on impairment, which requires a three-step approach, which in general replaces the current incurred impairment model with a new expected loss model. This research paper summarizes alternative impairment models and particularly focus on the significant deterioration criteria, which is a cornerstone of the new IFRS 9 impairment model. The expected loss model is not completely new within the accounting literature. The study provides early insights into implementation of IFRS 9 on impairment, as IFRS 9 will become applicable 2018. It is also relevant for regulators, as it becomes obvious due to the nonexistence of a dominant approach, the question arises if the regulator should provide more guidance to avoid that all companies pursue completely different models resulting in decreasing comparability for investors.

Keywords: IFRS 9, impairment, credit risk, financial institutions, accounting literature

JEL Classification: Accounting

Suggested Citation

Beerbaum, Dirk and Ahmad, Sammar, Credit Risk According to IFRS 9: Significant Increase in Credit Risk and Implications for Financial Institutions (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=2654120 or http://dx.doi.org/10.2139/ssrn.2654120

Dirk Beerbaum (Contact Author)

Aalto University - Department of Accounting and Finance ( email )

P.O. Box 1210
Helsinki, 00100
Finland

Sammar Ahmad

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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