FASB Proposes Targeted Transition Relief for Credit Losses Standard

In June 2016, FASB had issued the Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The credit losses standard introduced the expected credit losses method for measuring credit losses on financial assets measured at amortized cost, replacing the previous incurred loss method. It also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis. Some stakeholders—including auto financing institutions that extend credit to borrowers with limited or impaired credit histories—noted that certain financial statement preparers have begun (or are planning) to elect the fair value option on newly originated or purchased financial assets that have historically been measured at amortized cost. They noted that electing the fair value option would require them to maintain dual measurement methods—fair value measurements and amortized cost basis.

To address this issue, the proposed Accounting Standards Update would allow preparers to irrevocably elect the fair value option, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis on adoption of the credit losses standard. This would increase the comparability of financial statement information provided by institutions that otherwise would have reported similar financial instruments using different measurement methodologies, potentially decreasing costs for financial statement preparers while providing more useful information to investors and other users. Additionally, for entities that have not yet adopted the amendments in Update 2016-13 as of the issuance date of a final update of these proposed amendments, the effective date and transition methodology would align with that in Update 2016-13. For entities that have adopted the amendments in Update 2016-13 as of the issuance date of a final update of these proposed amendments, FASB will determine the effective date and transition requirements for the amendments in this proposed update after it considers stakeholder feedback on this proposed update. 

The provisions of this Exposure Draft, if finalized as proposed, would require improvements to the U.S. GAAP Financial Reporting Taxonomy. FASB welcomes comments on these proposed improvements to the Taxonomy through Proposed Taxonomy Improvements. After FASB has completed its deliberations and issued a final Accounting Standards Update, the proposed improvements to the Taxonomy will be finalized as part of the annual release process.

Related Links 

• News Release
• Exposure Draft (PDF)
• Proposed Taxonomy Improvements (PDF)
• Overview of Credit Losses Standard

Comment Due Date: March 08, 2019

Keywords: Americas, US, Accounting, Banking, Topic 326, Accounting Standards Update, Credit Losses Standard, Taxonomy, IFRS 9, Financial Instruments, FASB