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**The Impairment requirements** under IFRS 9 represent a significant shift from the incurred loss model of IAS 39 to a more forward-looking expected credit loss (ECL) model. This change aims to provide a more realistic and timely recognition of credit losses, enhancing the decision-usefulness of financial statements. Under IFRS 9, entities are required to recognize ECLs for all financial instruments that are not measured at fair value through profit or loss, including loans, debt securities, trade receivables, and lease receivables. The ECL model requires entities to assess the expected credit losses over the entire life of the instrument (lifetime ECLs) or the portion of the life of the instrument within the next 12 months (12-month ECLs). The choice between these two measures depends on whether there has been a significant increase in credit risk since initial recognition. If there has been no significant increase in credit risk, entities recognize 12-month ECLs, which represent the portion of lifetime ECLs that are expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. If there has been a significant increase in credit risk, entities recognize lifetime ECLs, which represent the expected credit losses that result from all possible default events over the expected life of a financial instrument. This dual approach ensures that entities recognize credit losses in a timely manner, reflecting both the current credit risk and the potential future credit deterioration. The simplified approach, primarily used for trade receivables and lease receivables, eliminates the need to assess whether there has been a significant increase in credit risk, always requiring the recognition of lifetime ECLs. Overall, the impairment requirements of IFRS 9 promote a more proactive and prudent approach to credit risk management, leading to more accurate and reliable financial reporting.
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