FRS102 Propoals to increase Provisions

Most Credit Unions are currently dealing with the issues of implementing FRS102 for the first time. The UK’s Financial Reporting Council (FRC), however, have issued a consultation on the next round of proposed changes to FRS102. These proposals could have a major impact on Credit Unions.

Expected Loss Model

For Credit Unions, the most significant proposal is to adopt the expected loss model for impairment (bad debt provision) from International Financial Reporting Standard 9 (IFRS 9). Under the proposals the provision would depend on the credit risk. The best case scenario under IFRS9 is you would need to provide for the expected losses on loans over the next 12 months and at worst the provision would be the expected loss over the life of the loan book. This would obviously mean a significant increase in the provisioning levels for most Credit Unions. As a result, we intend to look at these rules in more detail in a forthcoming blog.

There are various options which the FRC are considering regarding the implementation of these provisioning rules within FRS 102. This includes whether these rules should apply to all financial organisations or just a subset such as banks and buildings.

FRS102 Consultation

The consultation is open until 31 December 2016 and can be found by clicking here. The impairment proposals if accepted are expected to come into force in 2022.