On January 31, 2009, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued a joint document supplementing the document published in 2009, setting out instructions for the future accounting treatment of instruments measured at amortized cost.

The document issued reflects the consensus proposal for the recognition of impairment in so-called open portfolios, i.e. those comprising financial assets that, regardless of the time of entrance, have been grouped according to similar characteristics such as subject asset, industry, collateral, credit rating, etc.

Under the current rules and regulations , expected credit losses are recognized only when they materialize (applying the so-called incurred loss model ), although they are taken into account by the investor in the initial evaluation of the asset.

In the accounting treatment of financial assets valued at amortized cost, this implies an asymmetrical treatment of results: all income (i.e. good news) is recognized, but expected losses (bad news) are deferred until they manifest themselves. This internship leads to a certain overstatement of income and tends to generate procyclicality in results by not recognizing expected losses before they occur, which is considered particularly problematic in the case of the banking sector. In addition, the application of this method would have contributed to higher dividend and bonus payments during the up cycle, although ultimately written request this is a corporate management problem, not an accounting problem.

The IASB and FASB have separately analyzed possible solutions to this problem before issuing this joint paper. Initially, the IASB thought of reflecting expected losses by incorporating them in the instrument's effective interest rate subject , recognizing them over the life of the financial instrument. For its part, the FASB proposed recognizing the loss from the initial moment. The joint suggestion reflects a consensus of both positions. Thus, within the category of open portfolios, two classes of financial assets are distinguished, depending on the Degree uncertainty of collection.

For assets with a high Degree of uncertainty, the expected loss should be recorded promptly, while for the remaining assets it will be recognized proportionally over the life of the instrument, unless the value of the expected loss in the foreseeable future (at least 12 months after the closing date for the IASB and a period for which there is reasonable information to support the projections for the FASB) is higher, in which case the latter value would be recorded.

It is interesting to note that both bodies have rejected the Spanish model dynamic provision for the recording of expected losses, considering that it would not reflect the economic characteristics of the financial instruments at the date of evaluation, since for the accounting information to be useful, it must be neutral and therefore must capture the specific economic characteristics of the assets recognized for accounting purposes. However, it is fair to point out that the IASB also argued its rejection by considering that the dynamic provision admits a loss on initial recognition, which is also likely to occur with the new joint solution proposal by both bodies.

The new rules and regulations will mean a significant change in the accounting treatment of impairment in the financial industry, with direct repercussions on equity and income statements. The proposal, which is open for comments until April 1, also raises the possibility of extending this treatment to all financial instruments valued at amortized cost, which would considerably broaden the scope of application of the regulatory change.

These innovations are part of the continuous process of improving the quality of accounting information in order to recognize in a timely manner the status of the business, and demonstrate the high level of preparation required of accounting and auditing professionals, where quantitative techniques are becoming increasingly important as a means of justifying accounting solutions.