Page 12 University of Technology, Jamaica Notes to the Financial Statements 31 March 2020 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (f) Financial instruments (continued) Financial assets (continued) Impairment (continued) • Stage 2 – When a financial asset experiences a significant increase in credit risk subsequent to origination but is not credit impaired, it is considered to be in Stage 2. This requires the computation of ECL based on lifetime PD that represents the probability of default occurring over the remaining estimated life of the financial asset. • Stage 3 – Financial assets that have an objective evidence of impairment will be included in this stage. Similar to Stage 2, the allowance for credit losses will continue to capture the lifetime ECL. Macro-economic Factors and Forward-Looking Information The University applies an unbiased and probability-weighted estimate of credit losses by evaluating a range of possible outcomes that incorporates forecasts of future economic conditions. Macro-economic factors and forward-looking information are considered in measurement of ECL as well as the determination of whether there has been a significant increase in credit risk since origination. Measurement of ECL at each reporting period reflect reasonable and supportable information at the reporting date about past events, current conditions and forecasts of future economic conditions. The University uses three scenarios that are probability-weighted to determine ECL. Expected Life When measuring ECL, the University considers the maximum contractual period over which the University is exposed to credit risk. All contractual terms are considered when determining the expected life, including prepayment options. Application of the Simplified Approach For receivables from students, Student Loan Bureau and sponsors, the University applies the simplified approach permitted by IFRS 9, which requires that the impairment provision is measured at initial recognition and throughout the life of the receivables using a lifetime ECL. As a practical expedient, a provision matrix is utilised in determining the lifetime ECL for these receivables. The lifetime ECL is determined by taking into consideration historical rates of default for each segment of aged receivables as well as the estimated impact of forward-looking information. University of Technology, Jamaica 128
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