FASB updates guidance on measurement of credit losses

FASB on Wednesday issued updated guidance on the measurement of credit losses for accounts receivable and contract assets in response to feedback from private company stakeholders.

The project that led to the new, optional guidance in the Accounting Standards Update (ASU) was initiated by the Private Company Council following input from private companies and certain not-for-profit entities on challenges faced when applying Topic 326, Financial Instruments — Credit Losses, to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue From Contracts With Customers.

The amendments in the ASU are expected to reduce the time and effort necessary to estimate credit losses for current accounts receivable and current contract assets, while continuing to provide decision-useful information to investors and other financial statement users, according to a FASB news release. The ASU aims to address the cost and complexity of developing a reasonable and supportable forecast when estimating expected credit losses and the significant effort to estimate and record expected credit losses for current accounts receivable and current contract assets that were collected before the date that the financial statements were available to be issued.

According to the news release, the amendments provide (1) all entities with a practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the assets and (2) entities other than public business entities with an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606.

Codification improvements coming

FASB staff will draft an ASU, Codification Improvements, after recently discussing 34 proposed amendments aimed at clarifying language throughout the code. The amendments will be effective for annual reporting periods beginning Dec. 15, 2026, with early adoption permitted for both interim and annual financial statements.

FASB seeks advisory council members

FASB’s primary advisory body, the Financial Accounting Standards Advisory Council (FASAC), is seeking members for an initial one-year term beginning Jan. 1, 2026. Those interested in nominating a candidate should submit the FASAC nomination form by Aug. 29.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.