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IFRS 9 · Simplified approach
IFRS 9 allows a simplified approach for trade receivables, contract assets and lease receivables. Lifetime expected credit losses are recognised from initial recognition, so there is no need to track changes in credit risk over time. Most entities apply it through a provision matrix.
Group receivables that share credit risk characteristics, for example customer type, sector or geography.
Place each balance in an ageing bucket such as current, 1–30, 31–60 and 61–90 days past due.
Calculate historical loss rates for each bucket from past collections and write-offs.
Adjust the rates for current conditions and reasonable, supportable forecasts, such as the oil price, real estate or sector outlook.
Multiply each bucket's balance by its adjusted rate. The sum is the lifetime ECL allowance.
| Ageing bucket | Balance | Loss rate | ECL |
|---|---|---|---|
| Current | 42,150 | 0.4% | 168.6 |
| 1–30 days | 18,420 | 1.2% | 221.0 |
| 31–60 days | 7,860 | 3.5% | 275.1 |
| 61–90 days | 3,240 | 8.9% | 288.4 |
| 91–180 days | 2,110 | 21.4% | 451.5 |
AED thousands
We walk through the method, the assumptions and the outputs, and how they map to your balances.