Applying IFRS 9 to Related Company Loans

15 June 2018

BDO has published another “IFRS in practice” publication which sets out practical information about the application of key aspects of IFRS, including industry specific guidance. This publication provides you with necessary information and an in-depth presentation on related company loans under the new standard IFRS 9 Financial Instruments.

IFRS 9 Financial Instruments makes no distinction between unrelated third party and related party transactions. Entities that prepare stand-alone financial statements are required to apply the full provisions of the standard to all transactions within its scope. This means related company loan receivables must be classified and measured in accordance with the requirements of IFRS 9, including where relevant, applying the Expected Credit Loss (ECL) model for impairment.

Applying IFRS 9 to related company loans can present a number of application challenges as they are often advanced on terms that are not arms-length or sometimes advanced on an informal basis without any terms at all. In addition, they can contain features that expose the lender to risks that are not consistent with a basic lending arrangement. This publication sets out a summary of the key requirements of IFRS 9 (focusing on those that are likely to be most relevant to related company loans) and uses examples to illustrate how these requirements could be applied in practice.

Please speak to your BDO contact if you would like to discuss any aspects of the publication or contact the BDO Audit office for further information.

This issue of “IFRS in practice” publication as well archive issues can be downloaded from BDO’s Global website: https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-in-practice