We guaranteed a loan for a sister company — how do we actually book that?

A common mistake companies make is treating a financial guarantee as just a contingent liability mentioned in the notes, without recognizing anything in the accounts. IFRS 9, however, requires the issuing entity to recognize the guarantee as a liability at fair value on issuance. If a premium was received for the guarantee, that premium is the fair value; but when the guarantee sits between sister companies with no direct fee — common inside groups — fair value must be estimated another way, such as comparing the interest rate the borrower would have paid without the guarantee against the rate it actually got because of it.

After initial recognition, the liability is amortized gradually (typically on a straight-line basis over the loan term), but at every reporting date it must be measured at the higher of two figures: the expected-credit-loss allowance under IFRS 9 (based on any deterioration in the underlying borrower's creditworthiness), or the initial amount less cumulative amortization. That means any deterioration in the borrowing entity's position — even a related one — must be reflected immediately as a higher allowance at the guarantor.

RASEEKH helps groups and related-party structures build a clear accounting policy for issued financial guarantees — from the initial estimate of an implicit premium through to ongoing monitoring of the credit-loss allowance — so the guarantee's real economics are on the balance sheet before the auditor has to ask why they aren't.