Download ICPAK-Impairment of Assets

INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS OF KENYA
IMPAIREMENT OF ASSETS
IAS 39/IFRS 9
BY
CPA SOLOMON ATSIAYA
CEO KENYA POLICE SACCO
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INTRODUCTION
 IFRS 9, Financial Instruments first issued in November 2009;
introduces the requirements for the classification, measurement and
recognition of financial assets and financial liabilities . The complete
version of IFRS 9 was issues in July 2014 and replaced IAS 39. The
standard is effective for annual periods beginning on or after January
1, 2018.
 IFRS 9 requires all recognized financial assets that are within the
scope of IAS 39 Financial Instruments: Recognition and
Measurement to be subsequently measured at amortized cost or fair
value
 The most significant effect of IFRS 9 regarding the classification and
measurement of financial liabilities relates to the accounting for
changes in fair value of financial liabilities designated as at fair value
through the profit of loss.
CLASSIFICATION OF
FINANCIAL INSTRUMENTS
Sacco's classify financial instruments into the
following categories:
Financial assets and financial liabilities at fair value
through profit or loss which comprise financial assets
and liabilities acquired or incurred for the purpose of
selling for profit making or financial assets and
financial liabilities managed by the Sacco and their
performance evaluated on a fair value basis in
accordance with the Sacco’s investment strategy
Classification of financial
instruments cont’d
 Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They arise when
the Society provides money, goods or services directly to a customer with no
intention of trading the receivable
 Available for-sale-financial assets which comprise of non-derivative financial
assets that are not classified under any other categories of financial assets.
Quoted investments are classified as available for sale and carried at fair value.
Gains and losses arising from changes in fair value are recognised in other
comprehensive income and accumulated in the fair value reserve.
 Held-to-maturity investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities that management has the positive
intention and ability to hold to maturity. Where a sale occurs other than an
insignificant amount of held-to-maturity assets, the entire category would be
tainted and classified as available for sale
Impairment of Assets
Delayed recognition of credit losses
on loans was identified as a weakness
thus the introduction of IFRS 9
IFRS 9 introduces an "expected credit
loss" impairment that requires a timely
recognition of expected credit loss
Recognition of financial
assets
Available-for-sale financial assets and financial
assets at fair value through profit or loss are
subsequently carried at fair value.
Loans and receivables and held-to-maturity
investments are carried at amortised cost using the
effective interest rate method.
Gains and losses arising from changes in the fair
value of “financial assets at fair value through profit
or loss” are included in profit or loss in the period in
which they arise.
Recognition of financial
assets
Gains and losses arising from changes in the fair
value of available-for-sale financial assets are
recognised directly in equity, until the financial asset
is derecognised or impaired, at which time the
cumulative gain or loss previously recognised in
equity is recognised in profit or loss.
Dividends on available-for-sale equity instruments
are recognised in profit or loss when the Society’s
right to receive payment is established
Derecognition of financial
Assets
A SACCO Society is required to
derecognise a financial asset only when
the contractual rights to the cash flows
from the asset expire or it transfers the
financial asset and substantially all the
risks and rewards of ownership of the
asset to another entity.
Impairment of Reserves
Gains and losses arising from changes in
the fair value of available-for-sale financial
assets are recognised directly in equity,
until the financial asset is derecognised or
impaired, at which time the cumulative gain
or loss previously recognised in equity is
recognised in profit or loss.
Loan Loss reserves
 Saccos are required to ensure an appropriate and
adequate level of provisioning for the expected
credit loss is maintained at all times
 Loans to members are stated net of provision for
bad and doubtful loans.
 Loans are classified into the following categories
for purpose of provisioning:
Performing Loans are those that are being repaid
as per the contractual terms
Loan Loss reserves
cont’d
Watch loans are those that are past due up to 30
days
Substandard loans are those that are past due
over 31-180 Days
Doubtful loans are those that past due over
180 - 360 Days
Loss loans are those that have remained unpaid
over 360 days. They are considered uncollectible
or of little value and their continued recognition
is unwarranted.
Loan Loss reserves
cont’d
SASRA provides an impairment guide on the
expected credit loss as follows;
Performing Loans
- 1%*
Watch Loans
- 5%
Substandard
- 25%
Doubtful
- 50%
Loss Loans
- 100%
* Performing loans may be provided as a general
risk. Saccos may provide for performing loans
depending on their delinquency levels
LONG LIVE
THE CO-OPERTAIVE MOVEMENT
IN KENYA
Contacts-mail [email protected]
Mobile; 0722-381327
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Professionalism
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