FASB extends comment deadline on proposal for accounting for credit losses on financial assets

28 March 2013

The FASB has extended the comment deadline for its proposal to improve financial reporting about expected credit losses on loans and other financial assets held by banks, financial institutions, and other organisations. The new comment deadline on proposed ASU (Subtopic 825-15) is now May 31, 2013.

The decision was made in response to stakeholder requests for more time to consider the FASB's proposals on credit losses as well as the related staff “Frequently Asked Questions” document that was issued earlier this week. Stakeholders also expressed a desire to consider the IASB's proposal on credit losses, which was issued for public comment on March 7, 2013.

"The FASB decided to extend the comment period on its credit losses proposal in response to stakeholders' requests for more time to consider this important issue", stated FASB Chairman Leslie F Seidman. "Given our strong desire for a converged standard, the FASB encourages stakeholders to also consider the proposal issued by the IASB, which differs in some respects, and to share your views on the appropriate path forward.”

The FASB’s proposed model would utilise a single “expected credit loss” measurement objective for the recognition of credit losses, replacing the multiple existing impairment models in US GAAP. The current models generally require that a loss be “incurred” before it is recognised. Under the FASB proposal, management would be required to estimate the cash flows that it does not expect to collect using all available information, including historical experience and reasonable and supportable forecasts about the future.

The FASB model and the IASB model both would require that expected credit losses be estimated based on past events, current conditions, and reasonable and supportable forecasts about the future. The amount of credit loss that is ultimately recognised would be the same under both the FASB and the IASB impairment models.

The difference between the models relates to when losses that are currently expected would be recognised. Under the FASB model, an entity would record its current estimate of expected credit losses every period. The IASB model would record a portion of the expected credit losses until significant credit deterioration has occurred, at which point the full estimate of expected credit losses would be recognised.

Press release

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