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    FASB Proposes Improvements to Credit Losses Standard

    November 23, 2021

    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.

     

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    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

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