In June 2016, the FASB issued ASU 2016-13,1 which adds to U.S. GAAP an impairment model — known as the current expected credit losses (CECL) model — that is based on expected losses rather than incurred losses. Once effective, the new guidance will significantly change the accounting for credit impairment under ASC 326.2 See Deloitte’s June 17, 2016, Heads Up for more information about the new guidance.
FASB Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments.
FASB Accounting Standards Codification Topic 326, Financial Instruments — Credit Losses.
FASB Accounting Standards Codification Subtopic 325-40, Investments: Other: Beneficial Interests in Securitized Financial Assets.
FASB Accounting Standards Codification Subtopic 310-20, Receivables: Nonrefundable Fees and Other Costs.
The ASU defines PCD assets as “[a]cquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer’s assessment.”