How the Credit Losses Standard Could Change

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The Financial Accounting Standards Board (FASB) on Aug. 20 issued a proposed Accounting Standards Update (ASU) that would amend the requirements for transition and the scope of the credit losses standard that was issued in 2016.

The Financial Accounting Foundation oversees the FASB. Comments are due by Sept. 19 to the FASB’s website.

“The proposed [update] addresses areas of uncertainty brought to our attention by our stakeholders,” said FASB Chairman Russell Golden in a prepared statement. “It is intended to reduce transition complexity and represents our ongoing commitment to support a successful transition to our standards.”

The ASU does two things:

  • First, it requires entities other than public businesses to implement it for fiscal years beginning after Dec. 15, 2021, including interim periods within those fiscal years. “This would align the implementation date for their annual financial statements with the implementation date for their interim financial statements,” the ASU states.
  • Second, the proposal clarifies that receivables from operating losses aren’t within the scope of the credit losses standard. Rather, they should be accounted for in accordance with the leases standard, the update states.

In 2016, the FASB decided to defer the original effective dates by one year to the following:

  • For public companies that meet the definition of a Securities and Exchange Commission (SEC) filing, the update will be effective for fiscal years – and interim periods within those fiscal years – beginning after Dec. 15, 2019.
  • Other public companies will be required to apply the guidance for fiscal years beginning after Dec. 15, 2020 including interim periods within those fiscal years.
  • For private companies, nonprofits and employee benefit plans, the standard will be effective for annual periods beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.
  • Early adoption will be allowed for all organizations for fiscal years beginning after Dec. 15 this year, including interim periods within those fiscal years.

The FASB received more than 3,360 comment letters on exposure drafts in 2010 and 2012. The board participated in more than 95 meetings with financial statement preparers, and hosted eight public roundtables, and 15 preparer workshops. The board also met with more than 200 users of financial statements.

The 45-year-old FASB, an independent nonprofit based in Connecticut, establishes financial accounting and reporting standards for public and private companies and nonprofits that follow generally accepted accounting principles (GAAP).

The new standard provides more timely financial reporting of credit losses on loans and other financial instruments held by financial institutions and other organizations, according to the 2016 advisory.

The board is the designated standard-setter for public companies, boards of accountancy and the AICPA, recognized as such by the SEC. The board develops and issues financial accounting standards through a “transparent and inclusive process that is intended to promote financial reporting that provides useful information to investors and other users of financial information.”

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.

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