FASB Issues Q&A on Estimation of Expected Credit Losses by Firms
FASB issued a second question-and-answer (Q&A) document that addresses more than a dozen frequently asked questions related to the Accounting Standards Update No. 2016-13 titled “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The Q&A document covers the use of historical loss information, the making of reasonable and supportable forecasts, and the reversion to historical loss information.
The current expected credit losses (CECL) standard, which was issued in 2016, requires organizations to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Its objective is to provide financial statement users with an estimate of the net amount the organization expects to collect on those assets. The standard does not require a specific credit loss method; rather, it allows organizations to use judgment to determine the relevant information and estimation methods appropriate for their circumstances. The staff also encourages entities to read the first Q&A document, which was issued in January 2019 and addressed issues related to the weighted average remaining maturity (WARM) method for estimating the allowance for credit losses.
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Keywords: Americas, US, Banking, Accounting, IFRS 9, Q&A, CECL, Financial Instruments, Credit Risk, FASB
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