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WorkpaperIFRS 7 — Financial Instruments: DisclosuresL2 · L3

Credit risk, offsetting and transfers of assets: exposure by rating grade, reconciliation of the loss allowance, collateral, amounts set off and transferred assets

6 missions10 sections to document90 min
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Reviewed by
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Status
Published

Objective of the workpaper

Depending on the topic of the instance, fill in only the relevant blocks: gross carrying amounts by rating grade and movements in the loss allowance; maximum exposure and collateral; gross amounts, amounts set off and related amounts; transferred assets and associated liabilities. Grades, amounts and positions are case data. The reconciliation of the loss allowance is presented here as a table of the movements of the period (convention of the case), the entries being those of the charge and of the write-off.

10 sections · 36 blocks · 6 calculations · 2 entries

  • IFRS 7 §35M
  • IFRS 7 §42B
  • IFRS 7 §42C

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

6 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Credit risk: exposure by rating grade, reconciliation of the loss allowance, collateral and links with IFRS 9
Case tasks documented here
  • Compute the total gross carrying amount of the receivables.
  • Reconcile the loss allowance from the opening to the closing date.
  • Record the charge to the loss allowance.
  • Record the write-off of the receivables.
  • Compute the net exposure of the loans after collateral.
1

Facts and data

Inputs

  • Topic dealt with (credit, offsetting or transfers), instruments concerned and reconciling documents

    TextRequired

    CREDIT_RISK_OF_THE_TRADE_RECEIVABLES_AND_OF_THE_LOANS_TO_DISTRIBUTORS

  • Gross carrying amount of the first rating grade

    Number

    1,800,000

  • Gross carrying amount of the second rating grade

    Number

    900,000

  • Gross carrying amount of the third rating grade

    Number

    300,000

  • Gross carrying amount per the ledger (check)

    Number

    3,000,000

  • Loss allowance at the opening date

    Number

    120,000

  • Charge of the period

    Number

    85,000

  • Write-offs of the period

    Number

    25,000

  • Closing loss allowance reported

    Number

    180,000

  • Maximum exposure to credit risk before collateral

    Number

    1,000,000

  • Value of collateral held (capped at the exposure)

    Number

    650,000

  • Gross amount of the instruments recognised

    Number

  • Amount set off in the statement of financial position

    Number

  • Related financial instruments under the master agreement and not set off

    Number

  • Related financial collateral (for example cash)

    Number

  • Fair value of the transferred assets

    Number

  • Fair value of the associated liabilities

    Number

  • Transfer: rights and obligations retained, recourse limited to the transferred assets, continuing involvement

    Text

2

Supporting documents

Evidence

  • Documents obtained and referenced (ageing, rating table, master agreement, transfer contract)

    EvidenceRequired

3

Analysis of the credit, offsetting and transfer disclosures

Analysis

IFRS 7 §35MIFRS 7 §42BIFRS 7 §42C

  • Points examined: credit, offsetting, transfers

    ChecklistRequired

    • Gross carrying amount by credit risk rating grade
    • Changes in the loss allowance of the period explained by a reconciliation
    • Maximum exposure before collateral and collateral held
    • Gross amounts, amounts set off, net amounts presented and then related amounts not set off
    • Link between the transferred assets not derecognised in full and the associated liabilities
    • Continuing involvement: contractual rights or obligations retained or obtained
4

Calculations

Calculations

IFRS 7 §35MIFRS 7 §42B

  • Total gross carrying amount (sum of the grades)

    Calculation

    3,000,000

    Gross carrying amount of the first rating grade ; Gross carrying amount of the second rating grade ; Gross carrying amount of the third rating grade

  • Closing loss allowance (opening + charge − write-offs)

    Calculation

    180,000

    Loss allowance at the opening date ; Charge of the period ; − Write-offs of the period ; Closing loss allowance reported

  • Net exposure after collateral (maximum exposure − collateral)

    Calculation

    350,000

    Maximum exposure to credit risk before collateral ; − Value of collateral held (capped at the exposure)

  • Net amount presented (gross − set off)

    Calculation

    0

    Gross amount of the instruments recognised ; − Amount set off in the statement of financial position

  • Net amount after related amounts (net presented − related instruments − financial collateral)

    Calculation

    0

    Net amount presented (gross − set off) ; − Related financial instruments under the master agreement and not set off ; − Related financial collateral (for example cash)

  • Net position (fair value of the transferred assets − fair value of the associated liabilities)

    Calculation

    0

    Fair value of the transferred assets ; − Fair value of the associated liabilities

5

Illustrative entries

Entries

  • Entry for the charge

    Entry

    AccountDebitCredit
    Impairment expense85,000
    Loss allowance85,000

  • Entry for the write-off

    Entry

    AccountDebitCredit
    Loss allowance25,000
    Gross financial asset25,000
6

Judgments: rating grades and continuing involvement

Judgment

IFRS 7 §35MIFRS 7 §42BIFRS 7 §42C

  • Rating grades retained

    Judgment

    Grades reflecting the credit risk levels of the entity

    Grades reflecting the credit risk levels of the entity / Grades to be reconsidered / Not applicable

    Professional judgment: the grades are those the entity uses to manage credit risk; they are case data and not an imposed scale.

  • Rationale: link between the grades and credit risk management

    Text

    GRADES_ARE_THE_INTERNAL_RATINGS_USED_TO_MANAGE_CREDIT_RISK

  • Continuing involvement in the transferred assets

    Judgment

    Not applicable

    Continuing involvement (rights or obligations retained) / No continuing involvement / Not applicable

  • Rationale: contractual rights and obligations retained or obtained

    Text

7

Items to document for the credit, offsetting and transfer disclosures

Disclosure

IFRS 7 §35MIFRS 7 §42B

  • Information to prepare

    Checklist

    • Tables of exposure by grade and of reconciliation of the loss allowance
    • Offsetting table
    • Note on the transfers of financial assets
8

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

9

Conclusion

Conclusion

  • Notes tables reconciled to the financial statements: grades, movements in the loss allowance, collateral, offsetting and transfers, with the entries of the period

    ConclusionRequired

10

Normative references

References

  • Normative references cited in this workpaper

    References

11

Checks and financial statement impact

  • Topic and instruments describedPass
  • Grades = gross carrying amount per the ledgerPass
  • Closing loss allowance calculated = reportedPass
  • Charge entry balancedPass
  • Write-off entry balancedPass
Assets
-85,000
Liabilities
0
Profit or loss
-85,000
OCI
0
Equity
-85,000