IFRS 9 came into force in 2018 for entities applying International Accounting Standards. While its implementation did not impact Credit Unions applying FRS 102; it may have a major impact going forward. This is because the Financial Reporting Council (FRC) are currently carrying out a review of FRS 102. One of the changes they are considering is whether to bring in IFRS9 expected credit loss model into FRS102. Such a change may create a major impact on Credit Unions.

Currently Credit Unions use an incurred loss model. Under an incurred loss model, you assume that loans will be repaid until there is evidence to the contrary. In contract an expected loss model you need to start making expectations on future losses and providing on this basis. On its implementation for banks it led to large increases in provisioning. The calculation themselves will also create additional complexity and costs to Credit Unions.

The FRC are looking at various options such as who it should apply to, when it should be changed and the types of balances that it should apply to.

Later this year we expect to see the first exposure draft for FRS 102 and whether there will be implementation of the expected credit loss model.  If it is proposed it will be important that Credit Unions feedback into the proposals. We will update this site when further information is available.