The Research On The Expected Loss Model Of Financial Assets

After the global financial storm triggered by the American subprime mortgage crisisaffected the whole world, people in shock criticized the existing accounting standards.They thought the Incurred Loss Model was the cause of this economic disaster. TheIncurred Loss Model only confirmed the occurred loss, which can cause fluctuations in theincome statements leading to the cliff effects, causing investors to panic and turmoil infinancial markets. Under this background, IASB and financial regulatory authoritiesdecided to change this model, they thought an Expected loss Model was a settlement.This article uses the normative method to introduce all kinds of impairment model,focusing on the Expected Loss Model proposed by IASB and FASB. Firstly, this paperintroduces the research background and its significance, the evolution of financial assetimpairment models is summarized in this chapter as well. In addition, the innovation pointsand deficiencies of this paper are pointed out in the first chapter.On the basis of introducing related concepts and the development process of theExpected Loss Model, the paper explains five impairment model which are compared inthis part. The next chapter focuses on the assessment of the model and suggestions tomodify the model. This chapter is divided into two parts. In the first part, the essayexplains the pros and cons of the model. In the next part, the paper provides references forthe model based on the pros and cons. This paper suggests the breakthrough to develop themodel can be achieved from the views of accounting measurements and the financialregulations.Chapter5explains the may impacts on our country banking if we decide to use theexpected loss model. This chapter is divided into three parts. The first part is to introduceexisting accounting methods of impairment provision in China. The second part mainlyelaborates the impacts of the application of Expected Loss Model on the China’s banking.The third part lists challenges for China’s banking to use the model. The last chapter is about some suggestions on the application of this model in ourcountry banking. This chapter is divided into two parts. The first part is to modify ourfinancial asset impairment criteria, and the second section is about the preparations thebanks should make to apply the model in the future.