FASB proposed narrow-scope changes Thursday to its new standard for accounting for credit losses in a move designed to address issues raised by stakeholders during implementation.
Accounting Standards Update (ASU) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued by FASB in 2016 to bring a more forward-looking approach to financial reporting on credit losses.
FASB on Thursday published a proposed ASU that would amend ASU No. 2016-13 related to negative allowances. A negative allowance occurs when an organization recognizes a full or partial writeoff of the amortized cost basis of a financial asset, but later determines that the amount written off — or a portion of that amount — will in fact be recovered.
Stakeholders applying the new credit losses standard asked whether negative allowances were permitted on assets that already had shown credit deterioration at the time of purchase (known as PCD assets). The proposed ASU responds to this question by proposing to permit organizations to record negative allowances on PCD assets.
The proposal also would reinforce existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. Other narrow technical changes also are included in the proposal.
Comments on the proposal can be submitted to FASB through July 29 at FASB’s website.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.
