ECL provision and security deposit from debtors

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Hello,

whether we can provide ECL provision on total outstanding from debtor less security deposit obtained from them.?

Replies (2)

You can create a provision for ECL. But I believe that amount should be reliably estimated and recognised only to the amount of ECL but not the net of ECL (ECL-collateral). Basel norms prescribes tenure to treat ECL and liquidity shortfall for 12 months. Since it could take more time to sell the security deposits from debtors, the timing being uncertain, and collateral quality can possibly change, we should recognise the amount of ECL only. 

Then another provision for securitised assets related to ECL should be created in case if the value of the collateral has lowered. (If it falls under the scope of Provisions or Basel regulatory framework, or else, follow impairment) This is because, big bath provisioning is not allowed in new reporting standards.

looks like a lot has changed since 2018, and I think this framework and IFRS are teamed up to provide a solution: https://www.pwc.co.uk/who-we-are/regional-sites/midlands/insights/Impairment-its-NOT-a-general-bad-debt-provision.H T M L


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