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.
Keywords: Americas, US, Accounting, Banking, Credit Losses Standard, Topic 326, Accounting Standards Update, IFRS 9, CECL, Expected Recoveries, FASB
Previous ArticleBoE Publishes Financial Stability Report and Stress Test Results
Next ArticleEIOPA Updates Q&A on Regulations in December 2019
The Network for Greening the Financial System (NGFS) launched its first user feedback survey on climate scenarios, with the feedback period ending on February 27, 2023.
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.