Capetown

All I’ve Got are Simple Trade Receivables - Is IFRS 9 Relevant to Me?

By Allan Mundell, Nolands SA

IFRS 9 Financial Instruments became effective from 2018, addressing the accounting for all financial assets and liabilities, from simple trade receivables and payables to intercompany loans. IFRS 9 introduces, amongst other things, a new model for impairments. Whereas the previous standard, IAS 39, required the application of an incurred loss model, IFRS 9 moves us into a world of expected losses.

The general approach in IFRS 9 requires expected credit losses to be measured through a loss allowance at an amount equal to the 12-month expected credit losses or full lifetime expected credit losses.

In addition to this general model, IFRS 9 introduces a simplified approach for trade receivables. If you have a simple revenue transaction resulting in a receivable, you must use the simplified approach, which simply requires that you recognise an upfront provision for what you expect to lose on the receivable over its lifetime. The simplified approach may entail using a provision matrix or a loss rate approach. A provision matrix might, for example, specify fixed provision rates depending on the number of days that a trade receivable is past due.

Both approaches require some financial modelling to determine the appropriate provision rates or loss rates to apply to trade receivables, in order to determine the expected credit losses, and may be very complex. Remember, your auditors cannot audit their own work and therefore cannot assist with the calculations.

Nolands’ IFRS advisors have developed a simple online calculator that performs all the calculations detailed above, including the adjustments for forward-looking information that IFRS 9 requires. The tool aims to provide a high-quality, cost-effective solution to resolving your IFRS 9 problems. If you’re about to prepare your first IFRS 9-compliant financial statements and haven’t addressed the IFRS 9 elephant in the room, visit www.ECLCalculator.com to solve your problems in one easy step.


Allan Mundell

Allan Mundell

GGI member firm
Nolands SA
Advisory, Auditing & Accounting,Forensics & Tax
More than 10 offices throughout Africa
T: +27 21 658 6600
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Nolands SA is an international auditing firm located in 12 offices in all major centres in Africa. Nolands employs almost 200 people and focuses on providing the best possible solutions for its clients. The company prides itself on being “not ordinary” and on its ability to integrate services and respond rapidly to clients’ needs.

Allan Mundell is the CEO of Nolands Incorporated and is based in Cape Town, South Africa. He holds an Honours degree in accounting from the University of South Africa and qualified as a chartered accountant in 1999. Allan is currently the GGI Regional Chairperson of the Auditing, Reporting & Compliance Practice Group for Middle East and Africa (MEA).


Published: Auditing, Reporting & Compliance Newsletter, No. 02, Autumn 2019 l Photo: fivepointsix - stock.adobe.com

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