IBERSOL • 2023 Integrated Management Report

Consolidated Financial Statements A significant increase in credit risk (and the determination of impairment for all con- tractual cash flows of the asset to maturity) is assumed if the debtor’s external rating is materially downgraded or if a debtor is more than 90 days past due from the con- tractual payment date. The Group makes estimates based on default risk and loss rates, which require judg- ment. Inputs used to assess the risk for loss on these financial assets include: • credit ratings (to the extent they are available) obtained from information made available by rating agencies such as Standard and Poor’s and Moody’s; • significant changes in the expected performance and behavior of the obligor; and • data extracted from the market, notably on probabilities of default. Impairment of clients and other debtors IFRS 9 establishes an impairment model based on “expected losses”, which replaces the previous model based on “incurred losses” under IAS 39. In this sense, the Group recognizes impairment losses before there is objective evidence of loss of value aris- ing from a past event. This model is the basis for the recognition of impairment losses on financial instruments held whose measurement is at amortized cost or fair value through other comprehensive income. The impairment model depends on whether there has been a significant increase in credit risk since initial recognition. If the credit risk of a financial instrument has not increased significantly since initial recognition, the Group recognizes a cumulative im- pairment equal to the expected loss estimated to occur within the next 12 months. If the credit risk has increased significantly, the Group recognizes a cumulative impair- ment equal to the estimated loss expected to occur until the respective maturity of the asset. For accounts receivable, the Ibersol Group applies the simplified approach to calculat- ing expected credit losses, not taking into account changes in credit risk, but recogniz- ing a provision for losses based on the expected credit losses for the entire life of the asset on each reporting date. To this end, experience with historical credit losses and prospective factors are taken into account. Once the loss event has been verified under the terms of IFRS 9 (“objective proof of impairment”, in accordance with the terminology of IAS 39), the accumulated impair- ment is directly imputed to the instrument in question, and its accounting treatment from this moment onwards is similar to that provided for in IAS 39, including treatment of the respective interest. The carrying amount of the asset is reduced and the amount of the loss is recognized in the income statement. If, in a subsequent period, the amount of impairment decreases, the amount of impairment losses previously recognized is also reversed in the income statement if the decrease in impairment is objectively related to the event occurring after initial recognition. 430