Introduction
Since the adoption of IFRS 9 – Financial Instruments, businesses and financial institutions have faced significant changes in how they measure and report credit risk. One of the most challenging requirements introduced by IFRS 9 is the Expected Credit Loss (ECL) model, which requires entities to use a forward-looking approach in recognizing impairment on financial assets and managing credit losses ECL as part of overall risk management.
For many companies, preparing compliant and accurate ECL reports is a resource-intensive and highly technical process, as it often significantly increases the complexity of financial reporting. This is where Fathalla-FBC’s ECL Report Preparation Services play a crucial role, ensuring businesses achieve compliance, maintain transparency, and strengthen investor confidence in the face of evolving expected credit losses requirements.
What Is Expected Credit Loss (ECL)?
The ECL model under IFRS 9 requires entities to recognize credit losses earlier by accounting for expected losses instead of incurred losses. This involves:
Analyzing Financial Assets
Segmenting exposures based on risk profiles.
Categorizing instruments into Stage 1, Stage 2, or Stage 3 (based on credit quality deterioration).
Estimating Probabilities of Default (PD)
Calculating the likelihood that a borrower will default over 12 months or over the lifetime of the asset.
Measuring Loss Given Default (LGD) and Exposure at Default (EAD)
Estimating recovery rates and outstanding balances at the time of default.
Incorporating Forward-Looking Information
Using macroeconomic forecasts, industry trends, and stress testing scenarios.
Reporting
Providing detailed disclosures in line with IFRS 9 transparency requirements.
Scope of Our ECL Report Preparation Services
1. Analyze Financial Assets
Segment financial instruments according to credit risk.
Identify exposures across portfolios, loans, receivables, and other assets.
2. Expected Credit Loss Calculation
Perform 12-month ECL and lifetime ECL calculations.
Apply Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD).
Integrate forward-looking macroeconomic information.
3. Comprehensive ECL Reports
Provide detailed methodology, assumptions, and supporting data.
Include sensitivity analysis and stress testing.
Deliver audit-ready reports suitable for regulators and investors.
4. Full Compliance with IFRS 9
Align methodologies with IFRS 9 requirements.
Prepare required disclosures for financial statements.
Ensure consistency across group reporting.
Why ECL Reporting Matters
Regulatory Compliance
Non-compliance with IFRS 9 can result in penalties and reputational damage.Investor Confidence
Transparent reporting increases trust among stakeholders and financial markets.Risk Management
Forward-looking credit loss models provide better visibility of financial risks.Operational Efficiency
Automated, expert-prepared ECL reports reduce internal workload.
Benefits of Outsourcing ECL Report Preparation
Technical Expertise: Access to IFRS 9 specialists and risk modelers.
Accuracy & Audit-Readiness: Detailed reports ready for auditors and regulators.
Efficiency: Save time and resources with expert support.
Scalability: Services tailored to banks, corporates, and investment entities.
Global & Local Knowledge: Insights applicable to Egypt, Saudi Arabia, Germany, Turkey, and beyond.
Why Choose Fathalla-FBC?
At Fathalla-FBC, we combine accounting excellence with deep regulatory expertise to deliver best-in-class ECL reporting services. Our process includes:
End-to-end support from data analysis to final disclosures.
Application of robust risk models aligned with IFRS 9.
Tailored solutions for different industries and portfolios.
A collaborative approach with client finance and risk teams.
FAQs
1. What’s the difference between 12-month and lifetime ECL?
12-month ECL accounts for possible defaults in the next year, while lifetime ECL considers the entire remaining maturity of the asset.
2. Do all financial assets require ECL?
Most assets measured at amortized cost or FVOCI require ECL under IFRS 9, except for certain low-risk items.
3. Can small companies also use ECL models?
Yes. Even SMEs with trade receivables must apply simplified ECL approaches under IFRS 9.
4. How often should ECL reports be prepared?
At least quarterly for reporting purposes, with updates for material changes in risk.
Conclusion
The Expected Credit Loss (ECL) model under IFRS 9 represents a fundamental shift in financial reporting moving from incurred to expected losses. Businesses that fail to adapt risk falling behind in compliance, transparency, and stakeholder trust.
By partnering with Fathalla-FBC, organizations gain access to expert-driven, audit-ready ECL reports that comply fully with IFRS 9 requirements and enhance financial decision-making.
