Credit loss
IFRS 9 expected credit losses weight credit losses by the respective probabilities of default. Estimation considers the amount and timing of cash shortfalls, discounting and reasonable and supportable information, including forward-looking data. A loss can arise even when full payment is expected if it is expected later than contractually due. Do not confuse the credit loss for one scenario with the probability-weighted allowance across scenarios.
Worked example
A receivable requires $1,000 in one year, but in a particular scenario only $800 is expected then. At a 10% discount rate, that scenario’s credit loss is $200 ÷ 1.10 = $181.82; weighting it with other scenarios gives expected credit losses.
Common mistake
Ignoring the time value of money or equating the worst-case loss with the expected credit loss.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Supporting | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |