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FASB proposes guidance on measurement of credit losses
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FASB published a proposed Accounting Standards Update (ASU) on the measurement of credit losses for accounts receivable and contract assets for private companies and certain not-for-profit entities.
FASB and the Private Company Council took on this project, according to a news release, to address challenges regarding applying the guidance in FASB ASC Topic 326, Financial Instruments — Credit Losses (CECL). Private companies and not-for-profit entities have indicated that estimating expected credit losses for these balances can be costly and complex, FASB said.
FASB is accepting public comments on the proposed ASU through Jan. 17, 2025.
Stakeholders said that estimating expected credit losses for current accounts receivable and current contract assets requires significant effort and documentation even for assets that are collected before the issuance date of the financial statements. The ability to consider collections after the balance sheet date in estimating expected credit losses would significantly reduce complexity for preparers while still providing investors and other financial statement users with decision-useful information, the news release said.
The amendments in the proposed ASU introduce a practical expedient and an accounting policy election for private companies and certain not-for-profit entities related to the application of CECL to current accounts receivable and current contract assets arising from revenue transactions.
— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.