FASB Announces Public Roundtable Discussion on Credit Loss Standard, Releases Q&A on Implementation

Chris Gaetano
Published Date:
Jan 11, 2019

The Financial Accounting Standards Board (FASB) announced that it will be seeking further public input on its standard on credit losses at a public roundtable event, and it released a Q&A document going over some of the more common concerns it has heard since the standard was approved in 2016. 

The standard, among other things, requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, with the objective of presenting an entity’s estimate of the net amount expected to be collected on the financial assets. Under this guidance, entities will use reasonable and supportable forecasts to better inform their credit loss estimates. The standard does not require a specific credit loss method, however; it allows entities to use judgment in determining the relevant information and estimation methods that are appropriate in their circumstances. 

The Q&A document answers some of the more common questions and concerns stakeholders have raised. It clarifies that preparers may use the weighted-average remaining maturity (WARM) method to estimate allowances for credit loss, particularly for less complex financial asset pools, and it goes over when an entity might wish to use this method and how it may do so. It also says that, when implementing current expected credit losses (CECL) using a loss rate method such as WARM, it is acceptable to adjust historical loss information for current conditions and the reasonable and supportable forecasts through a qualitative, versus quantitative, approach. 

The roundtable event will take place on Monday, Jan. 28, 2019, from 8:30 a.m. to 2:00 p.m. at the FASB's Norwalk, Conn., headquarters. Roundtable participants will include representatives of banks of various sizes, regulators and other stakeholders. Agenda topics will include the FASB staff’s research on credit losses agenda requests, including a proposal submitted by a group of banks to consider an alternative to the income statement impact of the CECL model. The FASB’s consideration of charge-offs and recoveries as a component of the vintage disclosures and other transition issues will also be discussed. Observers who wish to attend in person must register in advance (seating is available on a first-come, first-served basis). The meeting will also be audio webcast and archived on the FASB website for 90 days.

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