FASB Proposes Guidance on Credit Losses for Private Companies and Certain Not-for-Profit Entities

The FASB, in coordination with the Private Company Council, has released a proposed ASU that would amend the guidance in ASC 326 to give private companies and certain not-for-profit entities (as defined in the proposal) the option of electing a practical expedient and an accounting policy “when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606.” Specifically, entities within the proposal’s scope that apply the practical expedient would be able to (1) assume that “current conditions as of the balance sheet date persist throughout the forecast period” and (2) “make an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses.”

The proposed ASU is being issued in response to stakeholder feedback indicating that the current guidance on this topic is costly and overly complex for such entities to comply with.

For more information, see the press release on the FASB’s Web site.