Lifetime expected credit losses
Under IFRS 9’s general approach, recognise lifetime expected credit losses when credit risk has increased significantly since initial recognition; other rules apply to purchased or originated credit-impaired instruments. The simplified approach requires lifetime expected losses for specified trade receivables and contract assets and is available for other qualifying balances. The estimate is probability-weighted, discounted and uses reasonable, supportable forward-looking information.
Worked example
A trade receivable subject to the simplified approach has potential discounted shortfalls of $1,000 with probability 20% and zero with probability 80%. Assuming these are all outcomes, the lifetime allowance is $200.
Common mistake
Interpreting lifetime ECL as losses expected to occur only in the next year, or recognising the maximum shortfall without weighting outcomes.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |