FASB alters transition requirements, scope of credit losses standard

FASB amended its standard on accounting for credit losses Thursday, changing the transition requirements and clarifying the scope of the standard.

The credit losses standard was issued in 2016 and requires more timely reporting of credit losses on loans and other financial instruments. The standard requires measurement of expected credit losses based on information about past events, current conditions, and reasonable and supportable forecasts affecting the collectibility of the reported amount.

The rules issued Thursday are designed to make transition less complex by requiring entities other than public business entities — including not-for-profits and certain employee benefit plans — to implement the credit losses standard for fiscal years beginning after Dec. 15, 2021, including interim periods within those fiscal years. This aligns the implementation date for the entities’ annual financial statements with the implementation date for their interim financial statements.

In addition, the new rules clarify that receivables arising from operating leases are not within the scope of the credit losses standard but should be accounted for in accordance with the leases standard.

The amendments issued Thursday are available in Accounting Standards Update (ASU) No. 2018-19, Codification Improvements to Topic 326: Financial Instruments — Credit Losses. The effective date and transition requirements of Thursday’s amendments are the same as those in the credit losses standard, as amended by the new ASU.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.