Abstract
The 2008 Financial Crisis occurred partially as result of the delayed credit losses recognised under the incurred loss model in the previous accounting standard by entities operating in the financial sector. The new accounting standard replaced this model with an expected credit loss model. This avoids the “too little, too late” problem of the incurred loss model; however, it is expected that the adoption of the new standard would result in significant increases in impairments not only in the financial sector but for entities in other sectors as well.
This dissertation seeks to determine the increase in expected credit loss allowances of the trade receivables balance of non-financial sector entities listed on the JSE Top 40 at initial adoption of IFRS 9. Subsequent years are not considered. A mixed-method approach is utilised to assess both quantitative and qualitative data using a content analysis in the form of a checklist. The results indicate an increase in the expected credit loss allowance of R1.2 billion. However, disclosure of forward-looking information requires improvement. The study is limited to entities listed on the JSE Top 40. Further research opportunities exist for non-financial entities in other countries, more in-depth studies of how the expected credit loss allowance balances were determined, as well as studies considering forward-looking information in more recent financial years.
Key Words
IFRS 9
Expected credit loss
Credit risk
Trade receivables
Incurred loss
2008 Financial Crisis
JSE
FTSE/JSE Top 40
South Africa