FASB Issues Codification Improvements to Credit Losses Standard
FASB published an Accounting Standards Update (No. 2019-11) that addresses issues raised by stakeholders during the implementation of the Accounting Standards Update No. 2016-13 on the measurement of credit losses on financial instruments (Topic 326). The key areas of improvement include expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables, and the conforming amendment to Subtopic 805-20.
Among other narrow-scope improvements, the new Accounting Standards Update clarifies how to report expected recoveries. Expected recoveries cover a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. While applying the credit losses standard, stakeholders questioned whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known as PCD assets). In response to this question, the Accounting Standards Update permits organizations to record expected recoveries on PCD assets.
In addition to other narrow technical improvements, the Update also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. The amendments extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis. Additionally, the amendments provide transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing and troubled debt restructurings, using the prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring.
For entities that have not yet adopted the amendments in Update 2016-13 as of the issuance date of this Update, the effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in Update 2016-13. For entities that have adopted the amendments in Update 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of this Update as long as an entity has adopted the amendments in Update 2016-13. For entities that have adopted the amendments in Update 2016-13, the amendments in this Update should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13.
Related Links
Keywords: Americas, US, Accounting, Banking, Credit Losses Standard, Topic 326, Accounting Standards Update, IFRS 9, CECL, Expected Recoveries, FASB
Featured Experts

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant

Jacob Grotta
Risk-measurement and structured-finance expert; experienced financial data analytics executive
Previous Article
AMF Guidelines on Liquidity, Solvency, and Disclosure RequirementsRelated Articles
BIS Examines Use of Big Data and Machine Learning at Central Banks
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA Finalizes Reporting Standard for Operational Risk Requirements
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB Publishes Guide for Determining Penalties for Regulatory Breaches
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS Sets Out Good Practices to Manage Operational Risks Amid COVID
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR Announces New Data Collection Application for Banks and Insurers
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB Publishes Overview of Resolution Tools Available in Banking Union
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting