FASB Proposes Improvements to Credit Losses Standard
The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326. The update is intended to improve the decision-usefulness of information provided to investors about certain loan refinancing, restructuring, and write-off events. The comment period on the proposed Update and proposed taxonomy improvements ends on December 23, 2021.
The proposed Update addresses areas in which modifications were needed and identified by FASB as part of its Post-Implementation Review process, which evaluates whether a standard is achieving its objective by providing investors with relevant information. During the Post-Implementation Review of the credit losses standard, including a May 2021 roundtable, investors and other stakeholders questioned the relevance of the troubled debt restructuring designation and the decision-usefulness of disclosures about those modifications. Some noted that measurement of expected losses under the CECL model already incorporates the forward-looking aspects of the troubled debt restructuring model and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications. The amendments in this proposed Update would eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for loan refinancing and restructuring by creditors made to borrowers experiencing financial difficulty.
FASB also received feedback that an illustrative example, which shows how a public business entity might meet the disclosure requirement to present financing receivable information by year of origination (commonly referred to as the “vintage disclosures”) includes a line item for gross write-offs and gross recoveries for each origination year. Some stakeholders indicated that it was unclear whether gross write-offs and recoveries are required to be presented in the vintage disclosures because that information is not listed as a specific disclosure requirement. Also, the disclosure of gross write-offs was cited by numerous investors as an essential input to their analysis. To address this feedback, the amendments in this proposed Update would require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.
Related Links
- Media Advisory
- Proposed Update (PDF)
- Post-Implementation Review Process
- Proposed Taxonomy Improvements (PDF)
- Release Notes to Taxonomy Proposal (PDF)
Comment Due Date: December 23, 2021
Keywords: Americas, US, Banking, Accounting Standards Update, Accounting, Disclosures, CECL, Topic 326, Financial Instruments, Credit Losses, Troubled Debt Restructuring, Credit Risk, FASB
Featured Experts
Jun Chen
A well-recognized researcher in the field; offers many years of experience in the real estate finance industry, and leads research efforts in expanding credit risk analytics to commercial real estate.
Cristian deRitis
Leading economist; recognized authority and commentator on personal finance and credit, U.S. housing, economic trends and policy implications; innovator in econometric and credit modeling techniques.
Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.