Journal of Accounting Review  2024/01
Vol.78   45-83

The Value Relevance of Legal Credit Loss and Expected Credit Loss Under IFRS 9 in Financial Industry

Shu-Hua Lee/Department of Accountancy, National Taipei University
Pei-Chen Hsieh/Department of Accounting, National Dong Hwa University
An-An Chuang/New Boom Global Limited Taiwan Branch (SAMOA)
Yann-Ching Tsai/Department of Accounting, National Taiwan University


Since 2018, besides the Financial Supervisory Commission in Taiwan (FSC Taiwan) regulations governing the procedures for evaluating assets and dealing with non-performing/non-accrual loans (hereafter the FSC Taiwan regulations), Taiwanese financial firms are required to disclose any differences in loss allowance based on the provisions for expected credit losses under IFRS 9. The study aims to compare the two systems (i.e. IFRS 9 and the FSC Taiwan regulations) and examine whether total loss allowance and expected credit losses are value-relevant as assessed by the two systems separately.
The experimental results reveal several findings. First, the total loss allowance and the total expected credit loss are both value-relevant, but additional loss allowance under ROC regulations is value-relevant while the loss allowance under IFRS 9 is not. Second, for the subsample of underestimated bad debt expenses under IFRS9, only the coefficient of additional loss allowance under the FSC Taiwan regulations is significantly positive; for the subsample of overestimated bad debt expenses under IFRS9, both the coefficient of loss allowance under the IFRS9 and the FSC regulations are significantly positive. Third, investors regard the quality of loss allowance under IFRS9 audited by specialized auditors as a positive, reliable metric. Fourth, the value relevance of the allowance loss during the IFRS9 period is significantly higher than that of during the IAS39 period.


IFRS 9Loss allowanceExpected credit lossValue relevance

2393 Views 110 Downloads