IFRS 9 requires impairment of financial assets using which model?

• A. Expected credit losses (ECL) over the life of asset.
• B. Only when asset becomes overdue by 90 days.
• C. Only tangible collateral value.
• D. Only at initial recognition.

Answer: (A)

IFRS 9 uses an expected credit loss approach to impairment, estimating losses over the life of the asset and updating the estimate as risk factors change. This means you recognize an impairment allowance at initial recognition and adjust it over time to reflect forward-looking information, not only when a default occurs. The model uses a staged approach: assets with no significant credit risk increase have a 12-month ECL, while assets with a significant increase in credit risk or that are credit-impaired have lifetime ECL. Collateral value isn’t the sole basis, since impairment focuses on expected cash shortfalls from the borrower, not just asset security. It’s also not activated only at initial recognition—the allowance is reviewed and revised at each reporting date. The 90-day overdue rule isn’t the triggering criterion under IFRS 9.