Significant increase in credit risk

Learning objectives

• Assess, by comparing the risk of a default occurring at the reporting date with that at initial recognition, whether credit risk has increased significantly, with the 30 days past due backstop.L2, L3, L4
• Prepare a workpaper documenting the significant increase in credit risk.L2, L3, L4

Normative references

• IFRS 9 §5.5.9At each reporting date, the entity assesses whether credit risk has increased significantly since initial recognition by comparing the risk of a default occurring at the reporting date with that at initial recognition (rather than the change in the amount of expected credit losses), using reasonable and supportable information that is available without undue cost or effort; the assessment is relative.
• IFRS 9 §5.5.11If reasonable and supportable forward-looking information is available without undue cost or effort, the entity cannot rely solely on past due information when assessing the significant increase; if it is not available, it may use past due information. Regardless of the method, there is a rebuttable presumption of a significant increase when contractual payments are more than 30 days past due; the entity can rebut it with reasonable and supportable information, and the presumption does not apply when the significant increase was identified before payments were 30 days past due.

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

3 questions

• The presumption that credit risk has increased significantly when contractual payments are more than 30 days past due cannot be rebutted.L2
• A working file describes the assessment of a significant increase in credit risk. Which of these statements is wrong?L3
• At 31 December, a loan granted to an SME has a contractual payment 35 days past due. The file manager argues that the delay comes from a transfer error by the customer, since corrected, and proposes not to consider credit risk as having increased significantly. Write a note concluding on the assessment of the significant increase in credit risk, separating case facts, rule and judgement.L4