On July 30, FASB issued an Accounting Standards Update (ASU) that enhances the guidance on the measurement of credit losses for accounts receivable and contract assets.

According to Journal of Accountancy, the project that led to the latest guidance in the ASU was started by the Private Company Council with feedback from private companies and certain not-for-profit entities on challenges faced when applying Topic 326, Financial Instruments—Credit Losses to current accounts receivable and current contract assets arising from transactions under Topic 606, Revenue From Contracts With Customers.

The challenges comprise the cost and complexity of developing a reasonable and supportable forecast when projecting credit losses and the considerable effort to estimate and record expected credit losses for current accounts receivable and current contract assets that were collected prior to the date that the financial statements were available to be issued.

To address the input, the ASU amendments offer (1) all entities with a practical expedient to assume that current conditions as of the balance sheet date do not change for the assets' remaining life and (2) entities aside from public business entities with an accounting policy election to consider collection activity following the balance sheet date when projecting expected credit losses for current accounts receivable and current contract assets coming from transactions under Topic 606.

The ASU amendments are anticipated to lower the time and effort needed to estimate credit losses for current accounts receivable and current contract assets while continuing to offer decision-useful  data to investors and other financial statement users.