FASB Extends Comment Deadline on Proposal for Accounting for Credit Losses

By Frank Byrt

The Financial Accounting Standards Board (FASB) voted March 28 to extend the comment deadline for its proposal to improve financial reporting on expected credit losses on loans and other financial assets held by banks, financial institutions, and other public and private organizations, as FASB and the International Accounting Standards Board (IASB) continue to work toward a common standard.
 
The new comment deadline on Proposed Accounting Standards Update, Financial Instruments – Credit Losses (Subtopic 825-15) is May 31, 2013.
 
The decision to extend the deadline came in response to stakeholder requests for more time to consider the FASB's proposals on credit losses, on the heels of FASB's release of its "Frequently Asked Questions" document issued March 25.
 
Stakeholders also expressed a desire to consider the IASB's proposal on credit losses, which was issued for public comment on March 7, 2013, FASB said. 
 
"The FASB decided to extend the comment period on its credit losses proposal in response to stakeholders' requests for more time to consider this important issue," said FASB Chairman Leslie F. Seidman. "Given our strong desire for a converged standard, the FASB encourages stakeholders to also consider the proposal issued by the IASB, which differs in some respects, and to share your views on the appropriate path forward." 
 
The FASB's proposed model would utilize a single "expected credit loss" measurement objective for the recognition of credit losses, replacing the multiple existing impairment models in US GAAP. The current models generally require that a loss be "incurred" before it is recognized. Under the FASB proposal, management would be required to estimate the cash flows that it does not expect to collect using all available information, including historical experience and reasonable and supportable forecasts about the future.
 
The FASB model and the IASB model both would require that expected credit losses be estimated based on past events, current conditions, and reasonable and supportable forecasts about the future. The amount of credit loss that is ultimately recognized would be the same under both the FASB and the IASB impairment models.
 
The difference between the models relates to when losses that are currently expected would be recognized. Under the FASB model, an entity would record its current estimate of expected credit losses every period. The IASB model would record a portion of the expected credit losses until significant credit deterioration has occurred, at which point the full estimate of expected credit losses would be recognized.
 
The FASB will consider the comments received on its proposal as well as the comments received by the IASB on its proposal. 
 
Related articles: 
 

You may like these other stories...

Regulators struggle with conflicts in credit ratings and auditsThe Public Company Accounting Oversight Board (PCAOB), which was created by the Sarbanes-Oxley Act in 2002, released its third annual report on audits of...
Regulatory compliance, risk management and cost-cutting are the big heartburn issues for finance execs in the C-suite. Yet financial planning and analysis—a key antacid—is insufficient.That's just one of the...
A review of Financial Accounting Standards Board (FASB) guidance on share-based payment transactions found that the 2004 standard achieves its purpose and provides useful information to investors and other users of financial...

Already a member? log in here.

Upcoming CPE Webinars

Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.