Introduction to IFRS 9 and Its Importance
IFRS 9 is a standard that controls how companies report financial assets and liabilities. Many companies find IFRS 9 complex. The standard asks companies to check their credit losses in detail. During the pandemic, companies face extra problems with these rules. COVID-19 has changed the way companies work. Businesses must check their numbers with more care now.
Asset Nature and Classification in IFRS 9 Assessment
You must review the nature and classification of assets in IFRS 9. The type of asset depends on how a company wants to use it and what benefits it expects. The pandemic made companies change their plans quickly. Some assets shifted from growth models to survival modes. This big change makes companies review and update their asset classes. If companies do not update asset types, they can break IFRS 9 rules. Each company must check assets often to stay correct.
Key things to check:
- Review why you hold each asset.
- Check if the economic benefit has changed.
- Update asset classes after any big business change.
- Follow IFRS 9 mandates after each review.
Credit Risk Assessment and ECL Models
The pandemic increased credit risk for many companies. When the economy suffers, more borrowers can’t pay on time. Companies gave borrowers more time or easier terms. Lenders now find it tough to check credit risks because of many unknowns. If a company sees higher risk, it must move assets from stage 1 to stage 2 or 3. This change means companies must calculate the lifetime expected credit loss (ECL), not just a short-term loss.
When you check credit risk, you must:
- Review all payment arrangements.
- Look for signs of higher default.
- Update the Probability of Default (PD).
- Update the Loss Given Default (LGD).
- Move assets to the right stage in the model.
Evaluating Variables and Assumptions in ECL Calculations
ECL models use many variables and assumptions. You must make sure every input is correct. Companies need to check the latest news and reports. For example, they should use new GDP numbers in their ECL models. Any government support or relief for borrowers must be included. Sensitivity analysis helps companies see what happens if conditions change.
To check your ECL models, you should:
- Test every variable with new data.
- Use information from trusted sources.
- Adjust your assumptions as new data arrives.
- Include all government programs or support.
- Run different scenarios to see different outcomes.
- Ask experts when you have complex questions.
Reasonable Approach to Judgement in ECL Models
Right now, there is a lot of uncertainty. It’s not smart to build new ECL models from scratch. Instead, companies should use their current models and add overlays or adjustments. These overlays reflect the judgement of experts. Companies can look at their own industry and apply the best scenario-based percentages.
How to use judgement wisely:
- Don’t change the main ECL model unless you must.
- Add overlays based on what’s happening in your market.
- Use industry data to set scenario ranges.
- Apply percentages to reflect real risks.
Checklist for a Good IFRS 9 Assessment
Companies should use a clear process:
- Review asset types and update after business changes.
- Check all credit arrangements for risk increases.
- Update all ECL model variables and assumptions.
- Use overlays for current economic conditions.
- Include government support and new data in models.
- Run sensitivity analysis for all main scenarios.
- Ask experts when models become too complex.
Why Expert Help Matters in IFRS 9
Companies often need expert help for IFRS 9. The work takes time and needs skill. Mubarak Al Ketbi (MAK) Auditing offers skilled teams for review. They have helped many companies in UAE. Experts save companies time and reduce mistakes. They know how to judge new risks and pick the best models. When you let the experts help, you sleep better at night!
How Mubarak Al Ketbi (MAK) Auditing Can Help
Mubarak Al Ketbi (MAK) Auditing helps with IFRS 9 assessment in the UAE. We support you with ECL calculations and asset reviews. Our team checks every variable and scenario. We keep your models updated after every business or market change. We give you guidance on overlays, judgement, and compliance. If you want to stay ahead of the curve, don’t put all your eggs in one basket—choose Mubarak Al Ketbi (MAK) Auditing!
- For more information, visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Contact/WhatsApp: +971 50 276 2132
