BINOMIAL MODEL FOR MEASURING EXPECTED CREDIT LOSSES FROM TRADE RECEIVABLES IN NON-FINANCIAL SECTOR ENTITIES

Authors

  • Branka Remenarić Zagreb School of Economics and Management (ZSEM)
  • Ivan Čevizović Čevizović Ivan j.t.d.
  • Ivana Kenfelja Zagreb School of Economics and Management (ZSEM)

Keywords:

Expected credit loss model, binomial model, IFRS 9, accounts receivable, financial instruments, incurred loss model

Abstract

In July 2014, the International Accounting Standards Board (IASB) published International Financial Reporting Standard 9 Financial Instruments (IFRS 9). This standard introduces an expected credit loss (ECL) impairment model that applies to financial instruments, including trade and lease receivables. IFRS 9 applies to annual periods beginning on or after 1 January 2018 in the European Union member states.

While the main reason for amending the current model was to require major banks to recognize losses in advance of a credit event occurring, this new model also applies to all receivables, including trade receivables, lease receivables, related party loan receivables in non-financial sector entities. 

The new impairment model is intended to result in earlier recognition of credit losses. The previous model described in International Accounting Standard 39 Financial instruments (IAS 39) was based on incurred losses. One of the major questions now is what models to use to predict expected credit losses in non-financial sector entities. The purpose of this paper is to research the application of the current impairment model, the extent to which the current impairment model can be modified to satisfy new impairment model requirements and the applicability of the binomial model for measuring expected credit losses from accounts receivable. 

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Published

2018-06-30

How to Cite

Remenarić, B., Čevizović, I., & Kenfelja, I. (2018). BINOMIAL MODEL FOR MEASURING EXPECTED CREDIT LOSSES FROM TRADE RECEIVABLES IN NON-FINANCIAL SECTOR ENTITIES. Ekonomski vjesnik/Econviews - Review of Contemporary Business, Entrepreneurship and Economic Issues, 31(1), 125–135. Retrieved from https://hrcak.srce.hr/ojs/index.php/ekonomski-vjesnik/article/view/6354

Issue

Section

PRELIMINARY COMMUNICATION