Second FASB Staff Q&A document: Estimating expected credit losses
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 requires organizations to measure all expected credit losses for financial assets within its scope and held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts with the objective of presenting an entity’s estimate of the net amount expected to be collected on the financial assets. The standard does not require a specific credit loss estimation method.
In January, the FASB Staff issued a question-and-answer (Q&A) document in which it agreed that the weighted average remaining maturity method is one of many methods that could be used to estimate an allowance for credit losses for less complex financial asset pools. The FASB staff recently issued a second Q&A document to address more than a dozen frequently asked questions related to ASU 2016-13, including those related to:
- Use of historical loss information
- Making reasonable and supportable forecasts
- The reversion to historical loss information
It should be noted that the FASB recently decided to propose deferring the effective dates for Topic 326 for smaller reporting companies and entities other than SEC filers. Further information regarding Topic 326 is available in our Current Expected Credit Loss (CECL) Resource Center.