United States

New broadly applicable financial instruments guidance taking effect


Financial Accounting Standards Board Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, starts coming into effect the first quarter of 2020 for calendar-year-end public business entities that are SEC filers, except for those that are eligible to be smaller reporting companies (SRCs) (as defined by the SEC). An SEC filer’s status as an SRC should be based on its most recent past SRC determination as of November 15, 2019. While the ramifications of the new credit losses guidance on financial institutions and other lenders has received a great deal of press, it is important to keep in mind that the scope of this guidance extends to all entities and to assets that are routinely held by nonlending institutions, including trade accounts receivable, contract assets and investments in debt securities. Refer to Chapters 4 and 6 of our recently updated publication, A guide to accounting for investments, loans and other receivables, for an in-depth analysis of the provisions of ASU 2016-13 (as subsequently amended), including comparisons of its provisions to the guidance it replaced. 

ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, comes into effect for private companies for fiscal years beginning after December 15, 2018 (and interim periods in fiscal years thereafter), and was effective for public business entities for fiscal years beginning after December 15, 2017 (and interim periods therein). Among other provisions, it requires equity securities to be measured at fair value, with changes in fair value recognized through earnings. An election can be made to account for certain equity securities that do not have a readily determinable fair value at cost, with adjustments to fair value through earnings if indications of impairment are present or upon the occurrence of an observable price change in an orderly transaction for the identical or similar investment of the same issuer. ASU 2016-01 also requires the portion of the change in the fair value of a financial liability accounted for under a fair value election that results from a change in the instrument-specific credit risk to be presented separately in other comprehensive income rather than reflected in the income statement. For additional information on the ramifications of ASU 2016-01 (as subsequently amended) to equity securities and financial liabilities accounted for under a fair value election, refer to Chapter 2 and Section 7.3.1, respectively, of our recently updated publication, A guide to accounting for investments, loans and other receivables

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