FASB Releases Host of Targeted Amendments to Credit Loss Standard

By:
Chris Gaetano
Published Date:
Apr 26, 2019
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The Financial Accounting Standards Board (FASB) has released a bevy of new, highly targeted and specific, amendments to its credit loss standard. The changes came about in response to a variety of implementation concerns from stakeholders. 

“Since issuing the financial instruments standards, including credit losses and derivatives and hedging, the FASB staff has been working with stakeholders to obtain feedback and address questions on the guidance,” said FASB Chairman Russell G. Golden. “Through these interactions, the FASB identified areas of the guidance that require clarification and correction. The amendments in the ASU [Accounting Standards Update] address those areas.”

This process has resulted in dozens of amendments in this most recent update. The section on accrued interest alone includes changes that allow an entity to: 

* Measure the allowance for credit losses on accrued interest receivable balances separately from other components of the amortized basis of associated financial assets. 

* Make an accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts if an entity writes off the uncollectible accrued interest receivable balance in a timely manner and makes certain disclosures.

* Make an accounting policy election to write off accrued interest amounts by reversing interest income or recognizing credit loss expense, or a combination of both. The entity also is required to make certain disclosures.

* Make an accounting policy election to present accrued interest receivable balances and the related allowance for credit losses for those accrued interest receivable balances separately from the associated financial assets on the balance sheet. If the accrued interest receivable balances and the related allowance for credit losses are not presented as a separate line item on the balance sheet, an entity should disclose the amount of accrued interest receivable balances and the related allowance for credit losses and where the balance is presented.

* Elect a practical expedient to disclose separately the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements.

The ASU is part of the FASB’s ongoing agenda project focused on improving the FASB Accounting Standards Codification and correcting its unintended application.

For entities that have not yet adopted the amendments in Update 2016-13, the effective dates and transition requirements for the amendments related to this update are the same as the effective dates and transition requirements in Update 2016-13. The transition adjustment includes adjustments made as a result of an entity developing or amending its accounting policy upon adoption of the amendments in this Update for determining when accrued interest receivables are deemed uncollectible and written off.

For entities that have adopted the amendments in Update 2016-13, the amendments in this update are effective for fiscal years beginning after Dec. 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of this Update as long as the entity has adopted the amendments in Update 2016-13.

For entities that have adopted the amendments in Update 2016-13, the amendments in this update should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date an entity adopted the amendments in Update 2016-13. The transition adjustment includes adjustments made as a result of an entity developing or amending its accounting policy upon adoption of the amendments in this Update for determining when accrued interest receivables are deemed uncollectible and written off.

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