March 2026
Spotlight on the new Expected Credit Loss (ECL) approach in GRAP
The revised GRAP 104 is effective from 1 April 2025. The new Standard introduces a new model for impairment of financial assets measured at amortised cost.
Although the classification of financial assets at amortised cost would not change in most circumstances, the Standard requires financial assets held in a business model for trading to be measured at fair value.
The new expected credit loss (ECL) model changes the previous incurred loss model and largely aligns with the principles in IFRS 9. Entities that have financial instruments and statutory receivables will apply both models in their financial statements separately, based on the classification of their receivables.
The two models can be summarised as follows:
Expected Credit Loss (ECL)
- Forward-looking
- Losses recognised before a default occurs
- Historical, current, and forward-looking information
- Based on expected credit losses over 12-month or lifetime horizon
- More responsive to changes in credit risk
- Earlier and typically higher provisions
Incurred Loss Model
- Backward-looking
- Losses recognised only after a loss event occurs
- Primarily historical information
- Based on incurred (realised) credit losses
- Delayed recognition of credit deterioration
- Lower provisions until losses materialise
Under GRAP 104, impairment is measured using either the general approach or the simplified approach, based on the type of financial instrument
NOTE: On first time adoption the impact of the application of GRAP 104 is required. Entities are required to disclose a reconciliation between the measurement categories and the class of financial instruments as at the date of initial adoption. [Directive 2.88R]
