The PwC global network of firms submitted comments on the IASB's Exposure draft ('ED'), Financial instruments: Expected credit losses. We recognize the significant efforts made by both the IASB and FASB (the 'boards') over the past several years to respond to the accounting concerns raised by constituents following the financial crisis. We understand the fundamental difficulties associated with establishing a credit impairment model that balances conceptual theory, operational feasibility and economic reality. Furthermore, we are cognizant of the difficulties associated with creating a model that responds to the needs of constituents that operate in a wide variety of economic and political environments.
Notwithstanding these difficulties, credit impairment is consistently identified by constituents as a critical element of the accounting framework and thus an area where a converged model is needed. Therefore, we continue to support the development of a single converged model for credit impairment under both IFRS and US GAAP and urge the boards to resume collaboration during the re-deliberation process to achieve this goal.
We believe an expected loss approach that requires constituents to consider a broader information set, including future expectations, represents a significant improvement as compared to the incurred loss model used today. Consistent with our comment letters on the original IASB exposure draft, Financial instruments: Amortized cost and impairment, the FASB proposed accounting standards update, Accounting for financial instruments and revisions to the accounting for derivative instruments and hedging activities, the joint supplementary document, Financial instruments: Impairment, and the FASB’s proposed accounting standards update, Financial instruments – Credit losses, we continue to support an expected loss approach to accounting for the credit impairment of financial assets.
Our letter outlines key comments that we would like to raise with the board. Our responses to the Board’s questions are included in Appendix 1.