Overview
The impairment model under NZ IAS 39 Financial Instruments: Recognition and Measurement was based on recognising an ‘incurred loss’ when something happened after the financial asset was initially recognised.
The new NZ IFRS 9 Financial Instruments, which is effective for financial reporting periods beginning on or after 1 January 2018, sets out new requirements for impairment of financial assets, including receivables using an expected credit loss model.
As a result, impairment losses are recognised at an earlier stage than they have been in the past and expected credit losses are required to be measured at each reporting date.
There is significant judgement involved in determining whether there has been a significant increase in credit risk for receivables and determining impairment in accordance with the expected loss model.