Explain the ECL model under IFRS 9.
A core Audit & Assurance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Expected Credit Loss: forward-looking model replacing the old incurred-loss model. For trade receivables: simplified approach – lifetime ECL from day one using a provision matrix. Auditor tests: historical loss rates, forward-looking adjustments, compare prior estimates to actual outcomes, test aging analysis accuracy.
WHAT INTERVIEWERS LISTEN FOR
- ✓Forward-looking expected credit loss model
- ✓Simplified approach for trade receivables
- ✓Lifetime ECL from initial recognition
- ✓Provision matrix using historical loss rates
- ✓Forward-looking adjustments and validation
COMMON MISTAKES
- ✗Confusing ECL with incurred loss model
- ✗Ignoring forward-looking adjustments
- ✗Applying 12-month ECL to trade receivables
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