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IFRS 9: Bad Debt Provisioning

2 Minute Read
Written by Stuart Anderson
24 May 2018

We have seen more discussions with CFO’s on the new IFRS 9 rules which were introduced in January 2018 and will be mirrored by US GAAP standards (ASU 2016-13) effective in 2019.

Discussions centred around how bad debt provisioning will be amended, moving from historic assessments to future estimates of “Expected Credit Losses”. Companies will need to calculate the likelihood of future losses even though they are likely to be collected. Calculations to establish the probability of future losses need to be modelled and included within P&L statements.

Under the new system bad debt provisions can create quite a burden in the balance sheet, fortunately, the presence of credit insurance can significantly reduce this and better reflect the impact of a bad debt.

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