The New Impairment Model: Audit and Disclosure Challenges

Yvonne Chan

This chapter discusses the audit and disclosure challenges facing entities that are applying either International Financial Reporting Standard 9’s (IFRS 9’s) expected credit loss (ECL) model or the Financial Accounting Standards Board’s (FASB’s) current expected credit loss (CECL) model to measure loan11 These impairment models generally apply to many forms of lending, including loans, trade receivables and debt securities. For the purposes of this chapter, reference is made only to loans, but applies equally to the other forms of lending. impairments for the first time. Although the chapter focuses on the challenges in the first year, many of these challenges will continue to be faced in the years to follow. The chapter provides background on the audit process, highlighting the procedures necessary to audit the estimate of the ECL or CECL models. Lastly, the chapter will discuss the challenges surrounding the disclosures prescribed by the IASB and/or FASB.


Both the ECL and CECL calculations are complex estimates, requiring the use of significant management judgement, and involve estimation uncertainty. The calculations involve extensive use of

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