1.3 Key Provisions of ASU 2016-13
The table below highlights some of the
key provisions of ASU 2016-13 and includes links to sections of this Roadmap that
discuss these provisions in more detail.
|
Topic
|
Key Provisions of ASU 2016-13
|
|---|---|
|
Scope (Chapter 2)
|
The ASU applies to:
AFS debt securities are outside the ASU’s scope
(see Chapter
7 for discussion of targeted changes made to the
impairment model for AFS debt securities).
|
|
Recognition threshold (Chapter
3)
|
None. Impairment is based on expected (rather than probable,
incurred) credit losses.
|
|
Measurement (Chapter 4)
|
Entities have flexibility in measuring expected credit losses as
long as the measurement results in an allowance that:
The entity must evaluate financial assets on a collective (i.e.,
pool) basis if they share similar risk characteristics. If an
asset’s risk characteristics are not similar to those of any of
the entity’s other assets, the entity would evaluate the asset
individually.
|
|
Application of the CECL model to off-balance-sheet commitments,
trade and lease receivables, and reinsurance receivables
(Chapter 5)
|
The CECL model affects the accounting for assets commonly found
at nonbanks and includes guidance that an entity should apply
when accounting for such assets.
|
|
PCD assets (Chapter 6)
|
The allowance for PCD assets is the estimate of
CECL. Interest income recognition is based on the purchase price
plus the initial allowance accreting to the contractual cash
flows. The non-credit-related discount or premium that results
from acquiring a pool of PCD assets is allocated to each
individual financial asset.
On June 27, 2023, the FASB issued a
proposed ASU that would
expand the model for PCD assets to include all financial assets
acquired in (1) a business combination, (2) an asset
acquisition, or (3) the consolidation of a VIE that is not a
business. The term PCD asset would be replaced with the term
PFA.1
|
|
AFS debt securities (Chapter
7)
|
The CECL model does not apply to AFS debt securities. However,
the FASB made targeted improvements to existing guidance,
including removing the OTTI concept and requiring the use of an
allowance limited to the difference between a debt security’s
amortized cost and its fair value.
|
Shortly before issuing ASU 2016-13, the FASB formed a credit losses
TRG.2 Although the group does not issue guidance, it provides feedback on potential
issues related to the implementation of the CECL model. By analyzing and discussing such
issues, the TRG helps the Board determine whether it needs to take action, such as
providing clarification or issuing additional guidance.
On the basis of feedback received from the TRG and other stakeholders
since the issuance of ASU 2016-13, the Board has thus far issued eight final ASUs (this
number does not include ASU 2022-01) in
an attempt to (1) clarify the guidance in ASU 2016-13 and (2) provide relief from the
costs of implementing the standard. The effective dates of the final ASUs are aligned
with that of ASU 2016-13. See Chapter
10 for more information about recent FASB activities.
Footnotes
1
AFS debt securities would be excluded
from the PFA model. In addition, for financial assets
acquired as a result of an asset acquisition or through
consolidation of a VIE that is not a business, the asset
acquirer would apply the gross-up approach to seasoned
assets, which are acquired assets unless the asset is
deemed akin to an in-substance origination. A seasoned
asset is an asset (1) that is acquired more than 90 days
after origination and (2) for which the asset acquirer
was not involved with the origination.
2
The TRG comprises financial statement preparers, auditors, and
users; FASB members also attend the group’s meetings. In addition,
representatives from the SEC, PCAOB, Federal Reserve, Office of the Comptroller
of the Currency (OCC), FDIC, National Credit Union Administration, and Federal
Housing Finance Agency are invited to observe the meetings.