This free, guided checker walks your finance team through the key decision points for IFRS 9 Loan Commitments and Undrawn Facilities. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
An irrevocable loan commitment is a firm commitment to provide credit under pre-specified terms that the entity cannot withdraw without penalty. Such commitments are excluded from the general classification rules but remain subject to the impairment requirements of Section 5.5 and to derecognition (IFRS 9.2.1(g)), unless they fall within IFRS 9.2.3 (designated at fair value through profit or loss, net-settleable, or below-market). Freely cancellable facilities sit outside the impairment scope, though supervisory expectations may still require monitoring.
Apply the guidance for cancellable, non-financial, or fair-value-through-profit-or-loss commitments rather than the Section 5.5 impairment model (IFRS 9.2.3).
Official guidance: IFRS issued standards
A below-market loan commitment is initially recognised at fair value, which captures the present value of the interest subsidy, and is subsequently measured at the higher of the Section 5.5 expected credit loss allowance and the initial amount less cumulative amortisation recognised under IFRS 15 (IFRS 9.4.2.1(d)). A market-rate commitment is measured only under the impairment model. The common trap is ignoring the day-one subsidy where the counterparty is a related party or the loan is concessionary.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Fair value at inception captures the present value of the concession implied by the below-market terms, plus directly attributable transaction costs for items not at fair value through profit or loss (IFRS 9.5.1.1). Where the counterparty relationship - for example a shareholder or group entity - explains the concession, assess whether the day-one difference is a distribution, a capital contribution, or an expense. The trap is recognising the loan only when drawn and omitting the commitment-period subsidy.
Complete the fair value measurement of the interest subsidy before recognising the below-market commitment (IFRS 9.5.1.1).
Official guidance: IFRS issued standards
For revolving facilities such as overdrafts and credit cards, the entity's exposure is not limited to the contractual notice period; IFRS 9.5.5.20 requires expected credit losses to be measured over the period the entity is exposed to credit risk and that exposure is not mitigated by credit risk management actions (IFRS 9.B5.5.39). Non-revolving commitments use the maximum contractual period (IFRS 9.5.5.19). The trap is truncating the measurement period to a one-day cancellation clause when the entity does not, in practice, cancel on default risk alone.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Exposure at default for loan commitments reflects the expected portion of the commitment that will be drawn before default, including future drawdowns on revolving facilities. Estimate the expected drawdown from historical utilisation behaviour and borrower-specific facts, and reflect both contractual and behavioural prepayments. The trap is measuring expected credit losses only on the currently drawn balance and ignoring the undrawn commitment that a distressed borrower is likely to draw.
Build the exposure-at-default assumptions for the undrawn and revolving portions before finalising the provision (IFRS 9.5.5.20).
Official guidance: IFRS issued standards
Loan commitments are outside the simplified matrix approach, which IFRS 9.5.5.15 restricts to trade receivables, contract assets, and lease receivables; they follow the general model with 12-month or lifetime staging unless credit-impaired at initial recognition (IFRS 9.5.5.1). Confirm that the model assigns the commitment to a stage and computes expected credit losses on the expected drawn exposure. The trap is applying a trade-receivable provision matrix to committed facilities.
Apply the general impairment model with 12-month and lifetime staging to the commitment (IFRS 9.5.5.1).
Official guidance: IFRS issued standards
Assess at each reporting date whether the risk of a default occurring over the expected life has increased significantly since initial recognition, comparing the risk now with the risk at inception rather than against an absolute threshold (IFRS 9.5.5.9). Use borrower- and facility-specific indicators, covenant breaches, watchlist status, and forward-looking macroeconomic information; the more-than-30-days-past-due presumption is a backstop (IFRS 9.5.5.11). The trap is anchoring on current default status instead of the change in lifetime default risk.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
A financial instrument is credit-impaired when one or more events with a detrimental impact on estimated future cash flows have occurred, such as significant financial difficulty, a breach of contract, forbearance granted for economic or contractual reasons, or the probable bankruptcy of the borrower (IFRS 9 Appendix A). Both Stage 2 and Stage 3 carry lifetime expected credit losses; the distinction drives disclosure and, for funded assets, the basis for interest revenue (IFRS 9.5.4.1). The trap is treating past-due status alone as conclusive without assessing the detrimental-event criteria.
Measure lifetime expected credit losses on the expected drawn exposure as a Stage 3 credit-impaired commitment (IFRS 9.5.5.3). Measure lifetime expected credit losses on the expected drawn exposure as a Stage 2 commitment (IFRS 9.5.5.3).
Official guidance: IFRS issued standards
Stage 1 measures the portion of lifetime expected credit losses associated with default events that are possible within the twelve months after the reporting date, applied to the expected drawn exposure (IFRS 9.5.5.5). Support the probability of default, loss given default, and exposure-at-default inputs with reasonable and supportable forward-looking information (IFRS 9.5.5.17). The trap is defaulting to a nil allowance for undrawn commitments on the assumption that unutilised limits carry no credit risk.
Complete the Stage 1 expected credit loss inputs before finalising the provision (IFRS 9.5.5.5).
Official guidance: IFRS issued standards
The change in the loss allowance is recognised in profit or loss as an impairment gain or loss (IFRS 9.5.5.8). For an undrawn loan commitment the allowance is presented as a provision (a liability); where the entity cannot separately identify the expected credit losses on the undrawn commitment from those on the drawn loan, the combined allowance is presented as a deduction from the loan, with any excess shown as a provision. The trap is netting the commitment provision against an unrelated loan asset.
Post the impairment charge and loan commitment provision before closing the period (IFRS 9.5.5.8).
Official guidance: IFRS issued standards
Disclose the inputs, assumptions, and estimation techniques used to measure expected credit losses (IFRS 7.35F), a reconciliation of the loss allowance for loan commitments from opening to closing balances (IFRS 7.35H), and the gross exposure by credit-risk grade including the nominal committed amount of undrawn facilities (IFRS 7.35K; IFRS 7.35M). The trap is omitting the undrawn commitment from the credit-risk exposure tables because it sits off the statement of financial position.
Loan commitment expected credit loss accounting and IFRS 7 credit-risk disclosures are complete (IFRS 7.35F). Complete the IFRS 7 credit-risk disclosures for the loan commitments and undrawn facilities (IFRS 7.35F; IFRS 7.35H).
Official guidance: IFRS issued standards
Send us your situation and one of our senior CPAs will review it with you - fixed fee, no surprises.
Contact Us