Explanation:
IFRS 9 introduced a forward-looking "expected credit loss" (ECL) model for provisioning, replacing the older "incurred loss" model. It requires a differentiated, multi-stage approach:
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Q.70 During a financial review meeting, a bank's audit committee is discussing the implementation of IFRS 9 standards in their credit risk assessment process. The Chief Auditor is explaining how IFRS 9 has revolutionized the bank's approach to provisioning for credit losses. To ensure the team's understanding, the Chief Auditor asks which of the following scenarios exemplifies the bank's compliance with IFRS 9's expected loss estimation mode?
A
Allocating a uniform loss provision percentage across the entire loan portfolio based on average historical loss data.
B
Estimating expected losses on a performing loan based on potential losses over its entire lifetime, regardless of its current performance status.
C
Assessing expected losses on underperforming assets by evaluating the 12-month loss outlook and adjusting provisions annually.
D
Applying a differentiated approach, where performing assets are assessed for 12-month expected losses and underperforming or nonperforming assets for lifetime expected losses.
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