IFRS Requirements for Recognizing Impairment on Securities

BY THOMAS G. REES AND KENNETH F. FICK

Given the movement toward acceptance of IFRS in the U.S., a discussion about other-than-temporary impairment on securities would not be complete without a discussion of the IFRS requirements.

           

IFRS requirements for recognizing impairment on securities are specified in International Accounting Standard no. 39, Financial Instruments: Recognition and Measurement. IAS 39 addresses a wide range of accounting issues relevant to financial instruments, including securities, loans, derivatives and liabilities.

           

IAS 39 requires entities to assess whether impairment exists at each balance sheet date. While the decision to recognize an impairment loss is also based on subjective criteria, the IFRS impairment rules are quite different from U.S. GAAP.  For example, under IFRS, the “other-than-temporary” concept is not considered, assets may be evaluated in groups and there is a different threshold for recognizing impairment. Specifically, paragraph 59 indicates that an impairment should be recognized only if “there is objective evidence of impairment as a result of one or more events” and the “loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.”

           

In addition, IAS 39 permits an entity to use a valuation reserve account when recognizing impairment and to reverse recognition of an impairment loss in a subsequent period, if certain criteria are met. These rules are considerably less stringent than current U.S. GAAP requirements.

 

 

RESOURCES

Keeping you informed and prepared amid the coronavirus outbreak

We’re gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption.

VIDEO

Excel walk-through: Sparklines

Want to liven up your spreadsheets with some color and graphical elements? Kelly L. Williams, CPA, Ph.D., shows how to use Excel sparklines, which illustrate data trends and patterns via small charts that fit in a single Excel cell.