The ECL.Calculator ® has been designed to be determine an IFRS 9 compliant Expected Credit Loss allowance for Trade Receivables. Before utilizing the ECL.Calculator® please consider the issues discussed below and those highlighted in the table below.
It is not certain that the use of this tool will be considered to have all the necessary detail that is required of listed companies as IFRS 9 requires a "undue cost or effort" consideration for certain ECL input factors and it is our view that this threshold for listed entities is at a significantly higher level that for non-listed entities.
We therefore recommend that if you are performing ECL calculations for trade receivables in a listed company environment you contact us directly for a customized solution that will meet the appropriate requirement of IFRS 9.
Factors to Consider | Why this is important | How we can assist |
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A portfolio made up of individually insignificant trade receivables | If your portfolio is made up of a small number of individually significant trade receivables the ECL calculation will be very sensitive to any significant individual credit event (or the absence of one) within the historic data captured. | Please contact us directly so that we can consult with us on how to mitigate this risk and determine a more evenly calibrated ECL |
A portfolio made up of trade receivables denominated in the same currency (this may include some foreign currency items if insignificant overall) | The inclusion of foreign currency denominated trade receivables in the portfolio may distort the determination of ECL as the information captured will incorporate movements associated with exchange rate fluctuations. | Ideally you should separate your trade receivable into sub-portfolios by currency and determine an ECL by portfolio. If you are unsure about how to do this, we can consult with you on the various options you could apply. |
Any factors that cause your trade receivables portfolio to contain groups of items for which the credit characteristics are not similar should cause you to consider creating appropriate sub-portfolios | Bearing in mind the significance of each of the following factors with regards customer credit behaviour, consider disaggregation into sub-portfolios:
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Determining optimal portfolio segmentation can be a complex process and different approaches will result in different ECL outcomes. We are able to consult with you to determine the optimal segmentation approach. |