KARACHI, March 22: The Institute of Chartered Accountants of Pakistan (ICAP) has released detailed guidelines for implementing the International Financial Reporting Standard (IFRS-9) Expected Credit Loss (ECL) model on circular debt, providing clarity for companies navigating Pakistan’s complex inter-corporate debt landscape.
The guidelines come after the Securities and Exchange Commission of Pakistan (SECP) temporarily deferred the application of IFRS-9’s ECL model for companies holding financial assets linked to circular debt. This exemption specifically applies to financial assets that are directly or ultimately due from the government of Pakistan in relation to inter-corporate circular debt, a persistent issue in Pakistan’s energy and public sector.
Circular debt, which arises from delayed payments across multiple entities—particularly in the power and energy sectors—can create liquidity crises, making it difficult for companies to assess and recognise expected credit losses under IFRS-9. The ECL model requires companies to estimate potential credit losses on financial assets, but given the government’s involvement in settling circular debt, SECP had granted a temporary reprieve to avoid undue financial strain on affected companies.
The SECP’s exemption will remain in place until financial years ending on or before December 31, 2025, allowing time for companies to align with the new ICAP guidelines. The SECP expects that these guidelines will facilitate companies in accurately applying IFRS-9 to circular debt, ensuring full compliance by the specified timeline.
