Expected Credit Loss (ECL)
Accounting glossary · Understand, connect, apply
Expected credit loss measures the discounted cash shortfalls expected from defaults, weighted by the likelihood of the outcomes. IFRS 9 applies the measure to instruments within its impairment scope.
Example
A lender models timely payment, partial collection and default. It combines the discounted shortfalls from the scenarios using their estimated probabilities.
Remember the difference
The estimate incorporates reasonable forward-looking information. It can be recognised before a borrower actually misses a payment.
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Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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