United States

Recent developments associated with the credit losses standard

FINANCIAL REPORTING INSIGHTS  | 

In June 2016 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced a new model for determining the allowance for credit losses known as CECL (current expected credit loss). On November 15, 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amended the effective date of ASU 2016-13 for entities other than public business entities (PBEs) by requiring non-PBEs to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU 2016-13 are as follows:

  • PBEs that are SEC filers: Fiscal years beginning after December 15, 2019, including interim periods within those years
  • PBEs other than SEC filers: Fiscal years beginning after December 15, 2020, including interim periods within those years
  • All other entities (non-PBEs): Fiscal years beginning after December 15, 2021, including interim periods within those years

The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Rather, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.

The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13, as amended by ASU 2018-19.

Also, it should be noted that at its November 14, 2018 meeting, the FASB decided to add a project to its technical agenda to allow entities, upon adoption of Topic 326, to irrevocably elect the fair value option for financial assets within the scope of Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost,” that are eligible for the fair value option in Subtopic 825-10, “Financial Instruments – Overall,” on an instrument-by-instrument basis. The FASB also decided not to allow entities an option to discontinue fair value measurements for financial assets measured at fair value and apply the guidance in Subtopic 326-20. The FASB directed its staff to draft a proposed ASU for vote by written ballot with a 30-day comment period.

In addition, some of the FASB’s recently proposed narrow-scope amendments to financial instruments standards address the measurement of credit losses on financial instruments.