Risks associated with trade credit have taken on a different angle, with the introduction of new standards under IFRS 9.
Various geopolitical, economic and financial risks have prompted international bodies to approach risk appetite and mitigation in a different way. A recent introduction by the International Accounting Standards Board (IASB) pertaining to the International Financial Reporting Standards (IFRS 9), will change the way companies and credit insurers manage credit risk, and how they provision for it.
The key addition is the Expected Credit Loss (ECL) principle, added to ensure that companies and credit insurers integrate vital processes to comply with the ‘expected credit loss impairment principles’.
The key points in IFRS 9
Financial and non-financial organizations take note
- A multitude of businesses will be impacted, with regards to the compilation of credit information. Companies will need to enhance credit information systems and procedures to collect data, as part of IFRS 9.
- Companies will be required to provision for potential losses based on information and forecasted data. The loss ratios pertain to receivables that are not yet deemed overdue.
- Under IFRS 9, additional requirements have been added, to include in the periodical financial statements.
- Credit management systems within companies, as well as accounting policies will need to be changed to adapt to the new standards.
Credit risk management will be approached in a different way, in order to safeguard the health of the financial industry. However, a key criticism to IFRS 9 remains the various interpretations of the principles, as stipulated under the standards.
How can credit insurance help?
Credit insurance can help companies waive the impact of provisions under IFRS9 for their receivables.
To learn more how LCI can ensure your company’s trade receivables, support you in shifting to new standards and preparing your company to integrate IFRS 9 standards, do get in touch with our team on: firstname.lastname@example.org or visit our website: www.lci.com.lb