This Roadmap provides Deloitte’s insights into and interpretations of the guidance in FASB Accounting Standards Update (ASU) No. 2016-13 (codified as ASC 326), Measurement of Credit Losses on Financial Instruments. The ASU adds to U.S. GAAP an impairment model known as the current expected credit loss (CECL) model, which is based on expected losses rather than incurred losses.
The 2021 update of this Roadmap contains new discussions related to ASU 2016-13, including the highlights of the recently issued proposed ASU on troubled debt restructurings and vintage disclosures. Also new to this publication is On the Radar (available as a stand-alone publication as well), a high-level synopsis of accounting and financial reporting topics related to ASU 2016-13.
The approach used to recognize impairment losses on financial assets has long been identified as a major weakness in current U.S. GAAP, resulting in delayed recognition of such losses and leading to increased scrutiny. Accordingly, the FASB issued ASU 2016-13 to amend its guidance on the impairment of financial instruments. The objectives of the CECL model are to:
- Reduce the complexity in U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments.
- Eliminate the barrier to timely recognition of credit losses by using an expected loss model instead of an incurred loss model.
- Require an entity to recognize an allowance of lifetime expected credit losses.
- Not require a specific method for entities to use in estimating expected credit losses.