Estimating Expected Credit Loss in FRS 109: Applying The Provision Matrix Approach for Trade Receivables (On Demand)

Description

FRS 109 Financial Instruments introduced changes to the calculation of bad debt provisions on trade receivables. Previously, companies provided for amounts when the loss had actually occurred.

Under FRS 109, companies are required to account for what they expect the loss to be on the day they raise the invoice – and they revise their estimate of that loss until the date they get paid. The concept of expected credit losses (ECLs) means that companies are required to look at how current and future economic conditions impact the amount of loss.

ECLs on trade receivables are measured by applying either the general model or the simplified model. Companies using the simplified model often use provisioning matrices that are based on historical data. Those matrices will have to be adjusted to incorporate reasonable and supportable information that is available at the reporting date.

Programme Outline

• Going through the definition of expected credit loss and how it differs from the previous bad debt impairment loss
• Illustrate using an example, with figures, of how ECLs are determined following a 6 step approach:
• Step 1: Segment customers based on credit risk characteristics
• Step 2: Define the period of sales and bad debts related to those sales
• Step 3: Calculate the historical payment profile of the trade receivables
• Step 4: Calculate the historical loss rate
• Step 5: Adjust the loss rate for current and forward-looking information
• Step 6: Calculate the expected credit loss using the expected loss rates

Practical challenges in segmentation of customers, addressing customers who are known to bad debt and incorporating forward-looking information will be discussed.

 This workshop qualifies for 1.5 CPE hours in Financial Reporting Standards and Pronouncements (Category 1). 

Target Audience

Accountants and Auditors

Expert Speaker

Daniel Chee

Daniel holds an Honours degree in Accountancy from the National University of Singapore and is a Certified Information Systems Auditor (CISA). He has more than 13 years of experience in the accounting profession, having worked for one of the Big 4 accounting firms both in Singapore and in the United Kingdom. He has also more than 5 years of senior management experience with MNCs, managing their operations in Singapore and Asia.

Daniel is a highly sought-after seminar trainer, and is currently an Adjunct Professor in the School of Business, Singapore University of Social Sciences. Prior to this, he was an Adjunct Associate Professor in the Department of Accounting of the NUS Business School. He served as a committee member of both the IT Committee and the Examination Committee of ISCA, and was a Committee member of the Disciplinary Sub-Committee of Accounting and Corporate Regulatory Authority (ACRA).