Questions:
How do IFRS 9 and FRS 102 differ in their treatment of impairments for debt instruments?

HCB purchased a debt instrument in the current reporting period that is measured at amortized cost. By the reporting date, no actual defaults had occurred. However, due to a general economic decline, the directors of HCB concluded that credit risk associated with the remaining loan period had increased significantly.

The following credit losses have been calculated:
12-month expected credit losses: $0.3 million
Lifetime expected credit losses: $1.0 million

What are the differences in how the above should be dealt with under International Financial Reporting Standards (IFRS) and FRS 102?

Reference answers:
IFRS 9 Financial Instruments applies to debt instruments at amortized cost or fair value through other comprehensive income (FVTOCI), lease receivables, contract assets, and certain written loan commitments and financial guarantee contracts. The impairment model focuses on assessing credit risk and recognizing expected credit losses over the life of the financial instrument. Under FRS 102, impairment is also based on expected credit losses. Similar to IFRS 9, FRS 102 applies to debt instruments at amortized cost or FVTOCI.

Under IFRS 9 Financial Instruments, a loss allowance should be recognized at an amount equal to lifetime expected credit losses if credit risk has increased significantly since inception.

Under FRS 102, financial asset impairments are calculated if there is objective evidence that impairment has occurred.

Under IFRS 9, 1 million will be charged to the income statement. Whereas, under FRS 102, no loss will be recognized in the income statement.


In accordance with IFRS 9 Financial Instruments, a loss allowance should be recognized at an amount equal to lifetime expected credit losses if credit risk has increased significantly since inception. As such an allowance for $1 million and a corresponding charge to profit or loss, should be recognized.

In accordance with FRS 102, financial asset impairments are calculated if there is objective evidence that impairment has occurred. No objective evidence exists about the particular borrower involved, and no default of payments has occurred. Therefore no impairment loss is recognised.