Did Expected Credit Loss (ECL) fair for Banks in COVID-19?

Abstract

In this paper, we explore the impact of the COVID-19 crisis on the accounting practices associated with the ECL approach by PSAK 71. Given the complexity of the pandemic, the neutral application of existing accounting standards is of more importance than ever as it ensures objective decision-useful information that serves comparability, maintenance of a level playing field and transparency. Worldwide interventions by banking regulators, however, have considerable potential to interfere with these fundamental contributions of financial statements. The result is that for banks under PSAK 71 it is not even entirely clear what assessments banks can and will use in their calculations estimating the effects of COVID-19.

Keywords: ECL, PSAK, COVID-19, Accounting practices

JEL Classification: G12, G13, G21, M41