Credit risk management practices

Learning objectives

• Explain that credit risk management practices are described in relation to the measurement of expected credit losses.L2
• Assess whether the description of practices covers significant increases in credit risk and the low credit risk exemption.L3

Normative references

• IFRS 7 §35FThe entity explains its credit risk management practices and how they relate to the recognition and measurement of expected credit losses: how it assesses significant increases in credit risk (including use of the low credit risk exemption and any rebuttal of the 30 days past due presumption), definitions of default, how instruments are grouped for collective assessment, how credit-impaired assets are identified, the write-off policy and the treatment of modifications of contractual cash flows.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• Quartz SA describes its commercial credit policy (limits per customer, payment terms) in the credit risk disclosures, without linking it to the measurement of its expected credit losses (case facts). Write a short justification stating whether this description is complete, distinguishing rule, case facts and correction.L2
• Rubis SA's notes describe its credit risk management practices: internal rating, limits, monitoring of arrears. They say nothing about how Rubis assesses a significant increase in credit risk, although Rubis relies on it to classify its loans, and do not mention the low credit risk exemption that Rubis uses for its government bonds (case facts). Write a short judgement note assessing whether the description covers what is expected, distinguishing rule, case facts and professional judgement.L3
• At year-end, the finance team of Banque Alcor allocates four tasks relating to its Stage 2 loans (case facts). Which of these tasks is an IFRS 7 disclosure requirement, rather than the measurement provided for by IFRS 9?L2
• An analyst prepares a note on the boundary between IFRS 9 and IFRS 7 for expected credit losses. Which of his sentences is wrong?L2