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ECL Your Financial Crystal Ball

IFRS 9 is published by international reporting standards. It accounting for financial instruments. Now, with IFRS 9 in your books, youu2019re required to consider ECLs or Expected credit loss at the time financial instruments are originated or acquired. ECL has actually shaken up the way we think about the accounting world. If you want to learn more details of ifrs certification course then contetra pvt ltd is the best place please go through the below link : https://contetra.com/diploma-in-ifrs-training/<br><br>

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ECL Your Financial Crystal Ball

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  1. ECL: Your Financial Crystal Ball

  2. Content

  3. Introduction • Gone are the days when the Indian financial sector suffered from inaccurate credit provisions. Now, with IFRS 9 in your books, you’re required to consider ECLs or Expected credit loss at the time financial instruments are originated or acquired. ECL has actually shaken up the way we think about the accounting world.

  4. So, what exactly is ECL?

  5. Why the shift to ECL? • Under previous accounting standards, we only recognized credit losses when their likelihood to defer was certain. This meant we were often playing catch-up, trying to address losses that had already occurred. ECL allows us to be proactive, identifying and addressing potential losses before they happen. • The adoption of IFRS 9 has had a significant impact on the financial statements of many entities. It’s resulted in an increase in the number of current expect credit losses recognized, particularly for instruments with longer maturities or for entities with higher credit risk. • But ECL is important for more than just lenders – it’s also important for investors and other users of financial statements. By understanding the ECL associated with a lender’s loans, investors can get a better sense of the risks associated with investing in that lender.

  6. How do we calculate ECL? • In order to calculate the current expected credit losses, we need to review our estimates at each reporting date and adjust them as necessary to reflect changes in credit risk. If the credit risk of a financial instrument increases, so should our ECL estimate. On the other hand, if credit risk decreases, our ECL estimate should decrease as well. • To do this, the formula typically used in practice is: • ECL = EAD * PD * LGD •  (Expected credit losses = exposure at default * probability of default * loss given default) • Exposure at default, or EAD, is the predicted amount of loss a lender may incur if a debtor defaults on their loan. • Probability of default, or PD, is a financial term describing the probability of a default over a particular period of time. •  Loss given default, or LGD, is the share of losses, i.e., the amount which is expected to be irrecoverable from assets in case of bankruptcy.

  7. Conclusion • IFRS 9 in three part classification and measurement of financial assets, Impairment of financial assets and Hedge accounting. The standard came into force on 1 January 2018, replacing the earlier IFRS for financial instruments, IAS 39. IF you do IFRS 9 or diploma in IFRS online course in detail then you should go with contetra PVT ltd. They provide you with study material, and they will add you to the finance first community group in that they will share good quality IFRS content after the batch will end they will take two mock tests. So if you are interested in a diploma in ifrs online classes then visit : https://contetra.com/diploma-in-ifrs-training/

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