FASB to draft final standard on credit losses

By Ken Tysiac

Financial reporting of credit losses on loans and other financial assets would move from an incurred-loss approach to an expected-loss approach under accounting rules FASB voted Wednesday to draft for issuance.

Current GAAP requires organizations to defer recognition of a credit loss until the loss is probable or has been incurred. The most recent global financial crisis resulted in calls for more timely reporting of credit losses on loans and other financial assets held by banks, lending institutions, and public and private organizations.

As a result, FASB and the International Accounting Standards Board (IASB) began a joint project to change financial reporting rules. Although both boards decided to issue standards that would reflect expected losses of credit rather than incurred losses, they settled on different models and could not agree on a converged standard.

The IASB introduced its expected-loss model in 2014 when it issued IFRS 9, Financial Instruments. The IASB’s standard takes effect for annual periods beginning on or after Jan. 1, 2018.

FASB also voted to defer its proposed effective dates by one year. Upon approval by the board of the ballot draft of the standard, FASB’s effective dates would be:

  • For public companies that are SEC filers, fiscal years (and interim periods within those fiscal years) beginning after Dec. 15, 2019.
  • For other public companies, fiscal years beginning after Dec. 15, 2020, including interim periods within those fiscal years.
  • For private companies, not-for-profits, and employee benefit plans, annual periods beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.

Early adoption will be permitted for all organizations for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years.

FASB expects the standard to be published in June. The board has created a transition resource group to analyze information from stakeholders arising from implementation of the standard and to inform FASB about those issues.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.


How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.


Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.


News quiz: Scam email plagues tax professionals—again

Even as the IRS reported on success in reducing tax return identity theft in the 2016 season, the Service also warned tax professionals about yet another email phishing scam. See how much you know about recent news with this short quiz.