FASB tweaks credit losses standard
The Financial Accounting Standards Board released an accounting standards update Thursday making narrow improvements to the credit losses standard, including the transition requirements.
The standard, which FASB issued in 2016, uses a current expected credit losses, or CECL, model for reflecting losses on impaired bank loans and other financial transactions. FASB worked with the International Accounting Standards Board on converging their financial instruments standards, but ultimately the two boards settled on different approaches to how to account for credit losses. Some banks and financial institutions have been trying to adapt to the new CECL standard, soon after adjusting to the new revenue recognition and lease accounting standards.
First, the accounting standards update aims to mitigate the complexity of the transition by requiring entities other than public business entities—including not-for-profit organizations and certain employee benefit plans—to implement it for fiscal years beginning after Dec. 15, 2021, including interim periods within those fiscal years. That promises to align the implementation date for their annual financial statements with the implementation date for their interim financial statements.
Second, the update clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard.
Although some banks have asked for more time to implement the standard, the effective date and transition requirements remain the same as the effective dates and transition requirements in the credit losses standard, as amended by the new standards update.
“Since issuing the credit losses standard, the FASB staff has been working with stakeholders to address questions and obtain feedback on the guidance,” said FASB Chairman Russell G. Golden in a statement. “Their input helped us develop the clarifications and improvements in the new ASU to ensure a smoother transition to the standard.”