FASB Tightens Credit Loss ReportingBy
The Financial Accounting Standards Board (FASB) has issued a new Accounting Standards Update (ASU) requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.
A wide range of stakeholders, including financial statement preparers and users, have criticized the existing approach for providing insufficient information about an organization’s expected credit losses.
The new standard addresses those concerns, noted FASB Chair Russell G. Golden. “The new guidance aligns the accounting with the economics of lending,” Golden explained, “by requiring banks and other lending institutions to immediately record the full amount of credit losses that are expected in their loan portfolios, providing investors with better information about those losses on a more timely basis.”
Under the new ASU, an organization must measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
The ASU will take effect for Securities & Exchange Commission (SEC) filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For public companies that aren’t SEC filers, the ASU will take effect for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other organizations, the ASU will take effect for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021.