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FASB Proposes Targeted Transition Relief To Institutions Applying The Credit Losses Standard

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The FASB recently issued an Exposure Draft titled Targeted Transition Relief for Topic 326, Financial Instruments—Credit Losses.
March 1, 2019

The FASB recently issued an Exposure Draft titled Targeted Transition Relief for Topic 326, Financial Instruments—Credit Losses.

The FASB previously issued ASU 2016-13, which created Topic 326 regarding the reporting of credit losses on financial assets. This standard requires an estimated allowance for credit losses to be reported in a separate valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. Topic 326 also allows entities to elect the fair value option on newly originated or purchased financial assets. As issued in 2016, a prospective transition approach is required where a financial instrument’s amortized cost basis would be the same before and after implementation. This ASU becomes effective for public entities for fiscal years beginning after December 15, 2019.

In response to concerns regarding the transition to ASU 2016-13, the FASB’s recently issued proposed amendments would allow entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For entities that anticipate electing the fair value option on newly originated financial assets, this option to change the reporting methodology on existing financial assets would provide more comparability of financial statement information by aligning the measurement methodologies for similar financial assets.

The potential effective date of the proposed amendments would generally align with the implementation date of ASU 2016-13 unless an entity has early adopted ASU 2016-13. Comments are due by March 8, 2019.

The full text of the Exposure Draft is available here.

 

Readers should not act upon information presented without individual professional consultation.

 

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