The new IFRS 9 rules effective January 2018, and equivalent US GAAP standards (ASU 2016-13) effective in 2019, are aimed at increasing the accuracy and transparency of how credit risk is represented on a company’s Balance Sheet and P&L. Both new standards include requirements around the use of both historic as well as forward looking credit information in order to calculate the provisions for credit losses (Expected Credit Losses).

1. Trading Perspectives
Special edition: Important upcoming accounting changes
November 2017
Aon Risk Solutions
Aon Credit Solutions

2. Table of Contents
IFRS 9 - Financial Instruments 1
IFRS 15 - Revenue from contracts with customers 3
References 5
About Aon Credit Solutions 5
Key contacts 6

3. 1
IFRS 9 - Financial Instruments
In focus
Recognition and measurement, impairment, de-recognition and general hedge accounting.
The new IFRS 9 rules effective January 2018, and equivalent US GAAP standards (ASU 2016-13) effective in 2019, are aimed at
increasing the accuracy and transparency of how credit risk is represented on a company’s Balance Sheet and P&L. Both new
standards include requirements around the use of both historic as well as forward looking credit information in order to calculate
the provisions for credit losses (Expected Credit Losses).
Under the new regulations, companies will have to start making bad debt provisions for possible future
credit losses in the first reporting period – even if it is highly likely that the asset will be fully collectible.
IFRS 9 requires an entity to base its measurement of expected credit losses on reasonable and
supportable information that is available without undue cost or effort, including historical, current and
forecast information.
Expected Credit Losses (ECL) is a probability weighted estimate of a credit loss. The ECL should be
forward looking and consider current and future projections, not solely historical data. The ECL has to be
revised if any new information is made available.
The ECLs are calculated by: i) identifying scenarios in which a receivable (or loan) defaults; ii) estimating the cash shortfall
that would be incurred in each scenario if a default were to happen; iii) multiplying that loss by the probability of the default
happening; and (iv) summing the results of all.
Estimated future cash flows at initial recognition $100 million
Estimated future cash flows if default occurs $10 million
Cash shortfall $90 million
Probability of default 0.5%
Expected credit loss $450k
For ease of illustration this example assumes only one default scenario. Under the accounting standards, companies would need
to model multiple scenarios in order to define the right bad debt provision levels.

4. 2
Related Credit Solutions
Your company is planning for the implementation of the accounting standard changes and it is likely that the provisioning of
doubtful receivable will increase as compared to current levels, especially due to the fact that probabilities of default will need
to be applied across the trade receivables ledger. Your company is looking for opportunities around balance sheet optimisation,
reporting efficiencies and cost savings.
Quantifying the (new) amount of trade provisions required. Aon has experience in modelling
expected credit losses based on client information available.
Optimising the credit risks. Our teams can perform actuarial analysis to help assess the financial
statements impact of purchasing credit insurance. This would include considerations around optimal
structure and potential costs.
Coordinating with your auditors. Aon teams have experience in communicating on credit risk financial
statement treatment with our clients’ external auditing firms.
IFRS 9 - Financial Instruments
How may credit solutions help your company?
Risk modelling illustration
Buyer A
Receivables
Loss Given
Default
Gross Loss
Net Loss to ABC
from Buyer A
Buyer B
Receivables
Default
(yes/no)
Loss Given
Default
Gross Loss
Sales
volumes
Receivables
Gross Loss
Net Loss to ABC
from Buyer C
Scenario
Generator
Buyer C
Default
(yes/no)
Default
(yes/no)
Sales
volumes
Sales
volumes
Rating of
Buyer B
Rating of
Buyer A
Probability
of default
Probability
of default
Net Loss to ABC
from Buyer B
Loss Given
Default
Probability
of default
Rating of
Buyer C
100,000
trials
Expected
Credit Loss

5. 3
IFRS 15 - Revenue from contracts
with customers
Nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts.
The IASB and the FASB have jointly developed new revenue standards, IFRS 15/ASC 606 Revenue from Contracts with Customers,
which will replace all existing IFRS and virtually all US GAAP revenue recognition requirements. These have a 1 January 2018
effective date.
The unit of account for revenue recognition under the new standard is a performance obligation. A
contract may contain one or more performance obligations.
Revenue will be recognised when an entity satisfies each performance obligation by transferring
control of the promised goods or services to the customer. Goods or services can transfer at a point in
time or over time depending on the nature of the arrangement. Specific criteria are provided for when a
performance obligation is satisfied over time.
Depending on an entity’s existing business model and revenue recognition practices, the new standard
could have a significant impact on the amount and timing of revenue recognition, which in turn could
impact key performance measures. Bad debt reserves are likely to be larger and more volatile.
In focus
Under the new accounting method, a company selling a 3 year software license should account for the licenses and services
together as a single performance obligation. Revenues related to the 3 year client contract may be fully recognised in the first
year if:
The multi-year contract cost of the service or product is not variable or subject to discounts or change;
and/or
The vendor is providing the license software and Post Contract Services exclusively to the buyer.

6. 4
Related Credit Solutions
Your company sells a 3 year software license to a buyer. The agreement also includes Post-Contract Customer support (PCS),
meaning access to future updates of the software throughout the agreement. Under the new standards, revenues from the
licenses will be fully recognised in year 1. The PCS will be recognised separately on a year by year basis.
Credit protection for multi-year contracts. A “risk attaching” credit insurance policy will cover
current and non-current (future) recognised revenue for the entire length of the contract upfront.
Especially, unearned, but recognised revenue relative to the non-current portions of the multi-year
contract will be covered.
Bad Debt Reserve. The new standards may lead to companies to increase their bad debt reserves to
cover the length of the contract. The flow-on-effect will impact key performance indicators, particularly
the return on equity metric. Credit insurance can serve as contingent capital which will allow your
company to reduce its allowance for bad debt reserve associated with these long term deals.
Competitiveness. In a highly competitive environment, credit Insurance can enable your company to
offer improved commercial terms to clients, whilst being able to mitigate the related credit risks..
How may credit solutions help your company?

7. 5
References
https://www.pwc.com/us/en/cfodirect/assets/pdf/in-depth/2014-01-revenue-from-contracts-with-customers.pdf
http://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-9/ifrs-9-understanding-the-basics.pdf
http://www.ey.com/Publication/vwLUAssets/Financial_instruments:_A_summary_of_IFRS9_and_its_effects/$FILE/ey-ifrs-9-
financial-instruments.pdf
https://home.kpmg.com/xx/en/home/services/audit/international-financial-reporting-standards/revenue/ifrs15-transition-toolkit.
html
About Aon Credit Solutions
Aon is a leading international credit insurance broker providing our clients with key solutions against non-payment risks, while
facilitating their business growth and improving access to trade finance. Our local specialised teams are united and coordinated
at a country, regional and global level by experienced market thought leaders.
We are passionate about leveraging credit insurance to support our client’s business growth. Our objective is to be regarded
by our clients as their preferred broking partner and trusted risk advisor, fully committed to delivering a proposition that is built
around traditional values of personal service, combined with access to the full breadth and depth of Aon’s global resource and
capabilities, including our constant monitoring of regulatory challenges and trends.
Global
credit broker in
terms of premium
placement
No. 1
$725bn
of trade
supported
Managed
Premium
$800m
Trusted
advisor
57countries
490+people
100+locations
Integrated
Multi-Debtor &
Single Risk

8. 6
About Aon
Key contacts
Fraser Bunn
Associate Director
Aon Credit Solutions US
t +(1) 305 961 5936
m +(1) 786 375 7448
fraser.bunn@aon.com
Remco Beuvens
Chief Development Officer
Aon Credit Solutions EMEA
t +31 (0) 10 448 7879
m +31 (0) 655 163 026
remco.beuvens@aon.nl
Innokenty Smorchkov
Actuarial Consultant
Aon Global Risk Consulting
t +41 58 266 86 41
m +41 78 765 39 63
innokenty.smorchkov@aon.ch
Helen Clark
Head of Asia
Aon Credit Solutions
t +65 62 39 7604
m +65 91 78 9032
helen.m.clark@aon.com
© Aon UK Limited 2017. All rights reserved.
The information contained herein and the statements expressed
are of a general nature and are not intended to address the
circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information and use
sources we consider reliable, there can be no guarantee that such
information is accurate as of the date it is received or that it will
continue to be accurate in the future.
No one should act on such information without appropriate
professional advice after a thorough examination of the particular
situation.
Aon UK Limited is authorised and regulated by the Financial
Conduct Authority. For more details, please visit aon.co.uk/
professional services
aon.co.uk
Aon plc (NYSE:AON) is a leading global professional
services firm providing a broad range of risk,
retirement and health solutions. Our 50,000
colleagues in 120 countries empower results for
clients by using proprietary data and analytics to
deliver insights that reduce volatility and improve
performance.
FPNAT345
Aon Credit Solutions is part of Aon UK Limited
which is authorised and regulated by the Financial
Conduct Authority.