EFRAG has issued a field-test report that summarises the findings received from participants in its field-test on the IASB Exposure Draft Financial Instruments: Expected Credit Losses. The field-test was undertaken by EFRAG and the National Standard Setters from France, Germany, Italy and the UK to help them formulate their views on the application of the proposed impairment requirements in IFRS 9 and to serve as input to the European Commission’s endorsement process.

On 7 March 2013, the IASB published the Exposure Draft Financial Instruments: Expected Credit Losses.

EFRAG and the National Standard Setters from France, Germany, Italy and the UK (ANC, ASCG, OIC and FRC respectively) conducted a joint-field test by asking preparers to report on their internal assessment regarding the implementation of the new requirements.

The exercise was focused on the practical application of the new requirements and was intended to gather solely facts and objective data, rather than views and opinions.

The main findings of the field-test indicate that:

a) The proposed model would be more responsive to changes in credit quality compared to the incurred loss model in IAS 39;

b) Many participants were concerned that the proposals in the ED did not allow them to sufficiently rely on their existing credit risk management and regulatory practices; and that not all necessary data are available;

c) While overall the requirements were found to be clear, they were rated operationally difficult to apply. As a consequence further guidance was considered necessary by participants;

d) Tracking credit quality, assessing the significance of credit deterioration, having access to sufficient data, discounting expected credit losses and fulfilling the disclosures would be operationally difficult;

e) Participants were divided as to whether the proposals in the Exposure Draft reflected the manner in which they assessed credit deterioration; and

f) Participants would incur significant implementation costs to apply the requirements in the ED.

EFRAG and National Standard Setters would like to thank all those that participated in this field-test.