The Financial Accounting Standards Board has released a staff document that provides answers to questions about FASB’s recently issued proposal on expected credit losses.

FASB released its proposal last December as part of its convergence project with the International Accounting Standards Board on financial instruments standards (see FASB Proposes More Timely Recognition of Expected Credit Losses). The IASB then issued its own proposals earlier this month, which take a different approach to loan impairment than FASB’s credit loss model (see IASB Diverges from FASB in Revised Loan Loss Proposals). The two boards plan to review the feedback they receive on their proposals and try to produce a converged standard. Meanwhile, both Fitch Ratings and a trade group representing credit unions have expressed concerns about FASB’s proposals (see Fitch Predicts FASB Loan Impairment Proposal Would Hit Bank Reserves and Credit Unions Worried about FASB Credit Loss Proposal).

To clear up any confusion, on Monday, FASB today posted to its website a FASB staff document responding to frequently asked questions about its recent proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15). The FAQ document addresses common questions posed by stakeholders about the recent exposure draft.

In response to the question, “Doesn’t the board really just want entities to record a larger allowance than is recognized under current U.S. GAAP?” the document explains in part. “No. The board is seeking to faithfully represent expected credit losses in the financial statements. It is not aiming for a particular size (or directional change) in the allowance for credit losses.”

The FAQ document, along with the proposed Accounting Standards Update and other educational materials, is posted to the Accounting for Financial Instruments—Impairment project page at www.fasb.org.

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