Abstract
As a response to incurred losses criticisms, both the International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB) worked to redesign accounting standards towards an expected credit loss paradigm. The aim was to anticipate loss recognition by avoiding issues experienced—in particular—during the 2007–2009 financial crisis. Starting from an initial joint effort for a unique solution, IASB and FASB agreed on common principles, but then issued two separated standards. IASB's International Financial Reporting Standard number 9 (IFRS 9), issued in 2014, relies on a three-bucket classification, where one-year or lifetime expected credit losses are computed. On the contrary, FASB's Current Expected Credit Loss (CECL) accounting standard update 2016–13 (topic 326: credit losses) follows a lifetime perspective as a general rule. IFRS 9 and CECL are separately introduced in Sections 1.2 and 1.3 to point out their similarities and differences. Then the focus is on the link connecting expected credit loss estimates and capital requirements as detailed in Section 1.4. As a final step, a book overview is provided in Section 1.5 as a guide for the reader willing to grasp on overview of the entire expected credit loss modelling and validation journey.
Published Version
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