Norwalk, Conn. - The Financial Accounting Standards Board has released a new set of standards aimed at improving the transparency of financial reporting by companies that hold financing receivables, which include loans, lease receivables, and other long-term receivables.
Accounting Standards Update No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, requires companies to provide more information in their disclosures about the credit quality of their financing receivables and the credit reserves held against them.
The additional disclosures required include aging of past-due receivables, credit quality indicators, and modifications of financing receivables. A company will need to disaggregate its new and existing disclosures based on how it develops its allowance for credit losses and how it manages credit exposures. Short-term accounts receivables, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from the update.
For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after Dec. 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after Dec. 15, 2010. For nonpublic companies, the amendments are effective for periods ending on or after Dec. 15, 2011.
The disclosures required are similar, but not identical, to those required by IFRS 7, Financial Instruments: Disclosures. However, IFRS 7 includes all financial instruments, not just financing receivables and the allowance for credit losses. FASB decided to limit the scope because it does not want to delay the improved transparency in financial statements about the allowance for credit losses and the credit quality of financing receivables.
The ASU is available at www.fasb.org.
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