Section 2.1 is intended to set out supervisory guidance on accounting for expected credit losses (ECL) that does not contradict the accounting standard.
Representatives of the International Accounting Standards Board (IASB) have been provided with the opportunity to comment on the Basel Committee's Guidance on credit risk and accounting for ECL, which section 2.1 reproduces.
The IASB representatives did not identify any aspects of the Basel Committee’s Guidance that would prevent a bank from meeting the impairment requirements of . The objective of section 2.1 is to set out supervisory guidance on sound credit risk practices associated with the implementation and on-going application of the IFRS 9 ECL accounting framework.
The scope of credit risk practices for this section 2.1 is limited to those practices affecting the assessment and measurement of ECL and allowances under the IFRS 9 accounting framework.
Supervisory evaluation of credit risk practices, accounting for expected credit losses and capital adequacy Principle 9: OSFI will periodically evaluate the effectiveness of a bank's credit risk practices.OSFI believes that the expectations set out in this Guideline will not impair an FRE’s ability to obtain an audit opinion that states that the financial statements are in accordance with Canadian generally accepted accounting principles, the primary source of which is the CPA Canada Handbook.IFRS 9 allows entities to designate a financial asset or financial liability at fair value through profit or loss upon initial recognition.OSFI guidance for credit risk and accounting for expected credit losses Principle 1: A bank's senior management is responsible for ensuring that the bank has appropriate credit risk practices, including an effective system of internal control, to consistently determine adequate allowances in accordance with the bank's stated policies and procedures, the accounting framework and relevant supervisory guidance.Principle 2: A bank should adopt, document and adhere to sound methodologies that address policies, procedures and controls for assessing and measuring credit risk on all lending exposures.
Principle 6: A bank's use of experienced credit judgment, especially in the robust consideration of reasonable and supportable forward-looking information, including macroeconomic factors, is essential to the assessment and measurement of expected credit losses.