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Covid exposes one weakness of IFRS 9 accounting standard
Management has to look into the front-view mirror and make judgments whether an asset or group of assets it is holding is capable of generating enough cash to pay for itself and make some profit. FILE PHOTO | NMG
Commercial banks saw their net profits in the second quarter of 2020 plunge by half, quarter-on-quarter as a surge in loan impairment losses chewed into their earnings.
The premise of impairing financial assets such as loans (or cash-generating units or group of assets) is based on recognising the fact that the carrying amount of an asset exceeds its recoverable amount; a difference that is recognised as a loss.
