Test-Bedding the Replacement of the Incurred Credit Loss Model with an Expected Credit Loss Model: The Case of Trade Receivables

We use a laboratory-controlled environment to provide experimental evidence on the potential intended and unintended consequences of the mandatory replacement of the Incurred Credit Loss Model (ICL) of IAS 39 by the Expected Credit Loss Model (ECL) of IFRS 9. We focus on the simplified version of the ECL model using the case of allowances for trade-receivable losses as the context. In particular, we induce incentives consistent with the …