International Accounting
Standards Board
30, Cannon Street, London EC4M 6XH, United Kingdom
№ 18-2-2-14/___
__ June 2010
On the Exposure Draft
ED/2009/12 Financial instruments:
Amortised cost and Impairment
Dear Sir/Madam,
The Bank of Russia has considered the Exposure Draft ED/2009/12 Financial
instruments: Amortised Cost and Impairment proposed by the International Accounting
Standards Board and informs the following.
Question 1
We think the description of the objective of amortised coast measurement in the
paragraph 3 of the exposure draft, which is ‘to provide information about the effective return on
a financial asset or financial liability by allocating interest revenue or interest expense over the
expected life of the financial instrument’, is more clear in the context of the information
presented in paragraphs 4-5 of the exposure draft. In these paragraphs also mentioned that
effective return reflects an allocation over the expected life of the instrument of fees, points paid
or received, transaction costs and other premiums or discounts as well as initial estimate of
expected credit losses on a financial asset.
Question 2
We think that the objective of amortised cost set out in paragraphs 4-5 of the exposure
draft, which is consist in combination of current cash flow information at each measurement date
with a valuation those cash flows that reflects conditions on initial recognition of financial
instruments, is appropriate for the measurement category ‘Measured at amortised cost’.
Question 3
We propose to consider the possibility of including in the exposure draft more detailed
guidance regarded the description of calculation of effective interest rate taking into account
expected credit losses for financial asset at initial and subsequent measurement because this issue
may cause problems to users in practical application.
Given, as it was noted in paragraph BC25 of Basis for Conclusions of the exposure draft,
that the proposed approach would not result in an impairment loss immediately after initial
recognition of financial asset and losses would be represented in the financial statements only
after initial recognition of the financial asset from the adverse change in the estimate of expected
credit losses, we propose to add to the exposure draft a complex example, in which there will be
represented calculations associated with estimate of financial asset over all his life period taking
into account expected losses and conditions, when for example:

The effective interest rate, which is set at the initial recognition of the financial
instrument as discount rate, is less than market interest rate (paragraph BC47 of
Basis for Conclusions of the exposure draft);

Financial asset is secured with the liquid collateral for 50 per cents;

During the period of service basic conditions of expected losses has changed
down;

Financial asset has impaired in a greater degree than it was assumed at initial
estimate (from 20 to 30 per cent).
Question 4
We agree with the measurement principles set out in paragraphs 6-10 of the exposure
draft and think that they are enough because they stipulate that:

Amortised cost shall be calculated using the effective interest method taking into
account expected cash flows over the remaining life of the financial instrument
and the effective interest rate as the discount rate;

The estimates of the amounts and timing of cash flows are the probabilityweighted possible outcomes;

The effective interest method determines the allocation of interest revenue and
interest expense.
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Question 5
We think that the description of the objective of presentation and disclosure of
information related to measurement of financial assets at amortised cost in the exposure draft,
which enables users to evaluate the financial effect of interest revenue and expense and the
quality of financial assets including credit risk is clear.
We believe that the objective of presentation and disclosure of information in relation to
financial instruments measured at amortised cost is appropriate because it corresponds with the
general objective of financial reporting in presenting helpful information to users of financial
statements (paragraph BC 23 of Basis for Conclusions of the exposure draft). Besides the
requirement that preparers of financial statements should provide the information in a way that
explains to users of financial statements the overall effect of different factors on the entity’s
performance and financial position and the interaction between different aspects of information
provided is very important (paragraph 12 (b) of the exposure draft).
Question 6
We think that separate information in financial statements about the amount of initially
expected credit losses and allowance for the reporting period received as the result of changes in
estimates of financial assets measured at amortised cost is useful.
We propose to consider the possibility to leave current requirements of disclosure the
amount of net interest income (losses) as a result of comparison of general amount of interest
income and general amount of interest losses (calculated using method of effective interest rate)
for financial assets or financial liabilities in other comprehensive income (paragraph 20(b) IFRS
7 Financial Instruments: Disclosures). As far as for financial entities interest loss represent the
information about the cost of borrowed funds and interest income represents the cost of their
placement, i.e. interest income and losses are in close correlation in using business model the
objective of which is holding of financial assets for receiving contractual cash flows.
Also we propose to consider the possibility to disclose the information about the amount
of initially expected credit losses of reporting period and the amount of allowance received as the
result of changes in estimates in the notes to financial statements and to disclose the
representation of final result of the formed allowance for credit losses in the income statement
(paragraph 13 of the exposure draft). Because the amount of initially expected credit losses of
reporting period will be so significant only for some entities for disclosing its separately in the
statement of comprehensive income.
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Question 7
We think it would be useful to make unalternative requirement for obligatory use of
allowance account for account for credit losses of financial assets measured at amortised cost,
which would promote the comparability of disclosed information by the different entities in their
financial statements.
We agree with proposed disclosure requirements (paragraphs 14-22 of the exposure draft)
because they present helpful information to users of financial statements for decision making. In
particular we think that requirements concerning disclosure of changes in allowance account by
class of financial instruments, write-off policy, and information that explains estimates and
changes in estimates that are required to determine amortised cost, are useful for users of
financial statements.
We think that disclosures about stress testing (in case if it is prepared and used for
internal purposes of reporting entity), which gives users of financial statements information of
entity’s ability to withstand the stress scenarios, are useful.
Also we think that requirements about disclosure of credit quality of financial assets are
useful. The result of these requirements will be disclosure of the information about nonperforming financial assets measured at amortised cost that helps users of financial statements to
analyse it appropriately. As far as definition of non-performing financial asset with indication of
particular criteria is presented in Appendix A of the exposure draft, any user of financial
statements would understand the meaning of this term clearly.
Question 8
We think that proposed effective date of the IFRS should be aligned with the effective
date of IFRS 9 Financial Instruments issued in November 2009 taking into account new
approaches to the classification of financial assets in estimating at amortised cost.
Question 9
We agree with proposed transition requirements (paragraphs 26-27 of the exposure draft)
because we think that such approach would provide comparability of data because on the date of
initial application of requirements of the exposure draft financial assets measured at amortised
cost would be presented in financial statements in accordance with effective interest rate,
calculated using expected losses approach and the financial effect would be presented in the
income statement and components of equity.
We wouldn’t prefer the alternative transition approach because in our view it would
represent less useful information than proposed approach, which is based on use of all available
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historical data taking into account current data used to determine effective interest rate,
calculated using expected losses approach for comparable financial instrument (portfolio of
financial instruments).
In whole we agree that comparative information should be restated to reflect the proposed
in the exposure draft requirements because it provides the comparability of current data and data
of the previous reporting period. But as far as restatement of comparable data may cause
significant costs we propose to consider the possibility not to restate data about financial
instruments measured at amortised cost at initial application of (draft) Standard, that were
recognized before effective date of this (draft) Standard and which recognition was ceased at the
reporting date, because result from derecognition of such financial instruments was already
accounted in profit or loss, other comprehensive income and components of equity. As well term
‘expected credit losses’ on application of transition requirements may relate to recognized
financial assets on the reporting date, and not to already derecognised assets and on which credit
losses has already been fixed in financial statements.
Question 10
We agree with the proposed disclosure requirements in relation to transition (paragraphs
28-29 of the exposure draft) which correspond with requirements for disclosure information at
initial application of IFRS (paragraph 28 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors). Disclosure of the information about the effect of the result from the
revaluation in accordance with transition requirements of the effective interest rate, which was
earlier determined in accordance with IAS 39 Financial Instruments: Recognition and
Measurement, on profit and loss will allow users of financial statements better understanding of
adjustments in estimations. Proposed requirements represent the best balance between presenting
of useful information and costs for its preparation.
Question 11
We think proposed approaches for designation of amortised cost of financial instruments
presented in paragraphs B15-B17 of Appendix B of the exposure draft are appropriate because
they are based on the measurement principles (paragraphs 6-10 of the exposure draft) and
include in calculation the effect of time value of money given all expected cash flows for
remaining time of life of financial instrument. In particular the approach of using provision
matrix is utilized by credit organizations in calculating the volume of provisions for credit losses
in accordance with Russian national law.
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Question 12
Approaches for determining amortised cost of financial instruments presented in
paragraphs B16-B17 of Appendix B of the exposure draft contains description of the main
principles of scheme of their possible use in practice. However for better understanding the
practical use of the proposed practical expedience by preparers of financial statements we
suppose to consider the possibility of using of proposed calculation techniques (paragraph B17
of the Appendix B of the exposure draft) in different numerical examples of calculation of
amortised cost of financial assets.
Yours sincerely,
V. Volkov
Deputy Director of the
Accounting and Reporting Department Head of the Division of methodology
and introduction of accounting principles,
development and support of
methodological basis of
financial reporting under IFRS,
Bank of Russia
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