United States

Proposed narrow-scope amendments to credit losses standard


The Financial Accounting Standards Board recently issued a proposed Accounting Standards Update (ASU) to address issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. If finalized, the proposed ASU would:

  • Permit organizations to record negative allowances associated with expected recoveries on assets that had already shown credit deterioration at the time of purchase. The proposed ASU also would clarify that recoveries or expected recoveries of the unamortized noncredit discount or premium should not be included in the allowance for credit losses.
  • Provide transition relief when adjusting the effective interest rate for troubled debt restructurings (TDRs) that exist as of the adoption date. Entities would be permitted to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring
  • Extend the disclosure relief in ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis
  • Provide clarifications regarding application of the guidance in paragraph 326-20-35-6 for financial assets secured by collateral maintenance provisions that provides a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of a financial asset and the fair value of collateral securing the financial asset as of the reporting date

The proposed ASU, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, is available for comment until July 29, 2019.