June 5, 2019 — FASB Discusses Proposed Improvements to Measurement of Credit Losses
FASB Discusses Proposed Improvements to Measurement of Credit Losses
Deloitte Accounting Journal Entry | June 5, 2019
At its meeting today, the FASB decided to issue a proposed ASU that would:
Amend ASU 2016-131 to permit entities to record a negative allowance when measuring the expected credit losses for a purchased credit-deteriorated (PCD) financial asset, not to exceed the PCD asset’s amortized cost basis.
Retain existing guidance in ASC 326-302 that prohibits entities from recording a negative allowance on available-for-sale debt securities.
Make minor improvements to ASU 2016-13 to clarify (1) that an entity can calculate the effective interest rate for existing troubled debt restructurings using prepayment assumptions as of the adoption date of ASU 2016-13, (2) that an entity that elected to account for accrued interest receivable (AIR) separately from the other components of amortized cost is not required to include such AIR in the amortized cost disclosure requirements of ASC 320,3 and (3) the scope and recognition provisions of the collateral maintenance practical expedient provided in ASC 326-20.
For entities that have not yet adopted ASU 2016-13, the effective date of the amendments (once finalized) would be the same as the effective date in ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments would be effective for fiscal years beginning after December 15, 2019, and interim periods therein.
The proposed ASU is expected to have a 30-day comment period. For further information, see the meeting handout and summary of tentative Board decisions, when available.