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Current Expected Credit Losses Complexities for Commercial Entities (November 20, 2019)

Accounting Spotlight
November 20, 2019
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Current Expected Credit Losses — Complexities for Commercial Entities


FASB Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments.
For titles of FASB Accounting Standard Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
ASC 326-20-30-10 provides that an “entity’s estimate of expected credit losses shall include a measure of the expected risk of credit loss even if that risk is remote, regardless of the method applied to estimate credit losses.” Only if an entity can support an assertion that the expectation of nonpayment of the amortized cost basis of an asset is zero would no credit loss provision be recorded.
See ASC 326-20-55-37 through 55-40.
ASC 326-20-15-3 lists financial assets that are excluded from the scope of the new CECL standard’s credit loss measurement guidance.
Although not specifically identified in ASC 326-20-15-2 as financial assets measured at amortized cost, contract assets within the scope of ASC 606 are also subject to the CECL model, as ASC 606-10-45-3 indicates.