FASB Extends Comment Deadline on Proposal for Accounting for Credit Losses
on Financial Assets
Norwalk, CT, March 28, 2013—The
Financial Accounting Standards Board (FASB) today voted to extend the comment
deadline for its proposal to improve financial reporting about expected credit
losses on loans and other financial assets held by banks, financial
institutions, and other public and private organizations. The new comment
deadline on Proposed Accounting Standards Update, Financial
Instruments—Credit Losses (Subtopic 825-15) is May 31, 2013.
decision was made in response to stakeholder requests for more time to consider
the FASB's proposals on credit losses as well as the related staff "Frequently
Asked Questions" document that was issued earlier this week. Stakeholders also
expressed a desire to consider the International Accounting Standards Board's
(IASB) proposal on credit losses, which was issued for public comment on March
"The FASB decided to extend the comment period on its credit
losses proposal in response to stakeholders' requests for more time to consider
this important issue," stated FASB Chairman Leslie F. Seidman. "Given our strong
desire for a converged standard, the FASB encourages stakeholders to also
consider the proposal issued by the IASB, which differs in some respects, and to
share your views on the appropriate path forward."
The FASB´s proposed
model would utilize a single "expected credit loss" measurement objective for
the recognition of credit losses, replacing the multiple existing impairment
models in U.S. generally accepted accounting principles (GAAP). The current
models generally require that a loss be "incurred" before it is recognized.
Under the FASB proposal, management would be required to estimate the cash flows
that it does not expect to collect using all available information, including
historical experience and reasonable and supportable forecasts about the
The FASB model and the IASB model both would require that
expected credit losses be estimated based on past events, current conditions,
and reasonable and supportable forecasts about the future. The amount of credit
loss that is ultimately recognized would be the same under both the FASB and the
IASB impairment models.
The difference between the models relates to when
losses that are currently expected would be recognized. Under the FASB model, an
entity would record its current estimate of expected credit losses every period.
The IASB model would record a portion of the expected credit losses until
significant credit deterioration has occurred, at which point the full estimate
of expected credit losses would be recognized.
The FASB will consider the
comments received on its proposal as well as the comments received by the IASB
on its proposal.
Since 1973, the
Financial Accounting Standards Board has been the designated organization in the
private sector for establishing standards of financial accounting and reporting.
Those standards govern the preparation of financial reports and are officially
recognized as authoritative by the Securities and Exchange Commission and the
American Institute of Certified Public Accountants. Such standards are essential
to the efficient functioning of the economy because investors, creditors,
auditors, and others rely on credible, transparent, and comparable financial
information. For more information about the FASB, visit our website at www.fasb.org.