Impairment of Financial Assets - Simplified Approach
IFRS 9 discusses the relevance of impairment loss to be accounted for at the time of initial measurement of the financial asset itself. The simplified approach under IFRS 9 helps an entity to quantify the life time losses for majority of receivables and contract assets, rather than spending time analyzing the initial 12 months' expected losses and review these on each reporting date.
While this is going to take care of majority of financial assets (taken through amortized cost), the IASB has not provided any insight for the accounting for short term investments, that are held with a business model of recovery of contractual cash flows. This is likely to be a challenge for institutions making such investments to measure both 12 months' expected losses and also the life time expected losses. For banking and insurance companies, while they have a comfort of using their existing models and tools to quantify the initial 12 months' expected loss, other companies will continue to face the challenge of measuring both 12 months' expected loss and the life time expected loss at the end of each reporting date.
The video session explains the simplified approach for the trade receivables, contract assets and lease receivables.