FASB VOTES TO PROCEED WITH FINAL STANDARD ON CREDIT LOSSES
Norwalk, CT, April 27, 2016—The Financial Accounting Standards Board (FASB)
today voted to proceed with a new accounting standard that provides
timelier financial reporting of credit losses on loans and other
financial instruments held by financial institutions and other
organizations. The final Accounting Standards Update (ASU) is expected
to be published in June 2016.
At the meeting, the Board decided to defer the original effective dates by one year to the following:
The Board also voted to provide practical and transitional relief for certain organizations disclosing vintages.
- For public companies that meet the definition of a U.S.
Securities and Exchange Commission (SEC) filer, the upcoming standard
will be effective for fiscal years (and interim periods within those
fiscal years) beginning after December 15, 2019.
- Other public companies will be required to apply the guidance
for fiscal years beginning after December 15, 2020, including interim
periods within those fiscal years.
- For private companies, not-for-profit organizations, and
employee benefit plans, the standard will be effective for annual
periods beginning after December 15, 2020, and interim periods within
fiscal years beginning after December 15, 2021.
- Early adoption will be permitted for all organizations for
fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years.
As a next step, the FASB staff will complete a "ballot draft" of the ASU
that includes all of the Board's final decisions. The ballot draft will
be shared with each of the seven Board members, who will review it to
ensure that it accurately reflects the decisions made throughout their
public deliberations. When the Board is satisfied that the ballot draft
reflects its intentions, the draft will be submitted to production for
The global financial crisis highlighted the need for more timely
reporting of credit losses on loans and other financial assets held by
banks, lending institutions, and public and private organizations.
Current Generally Accepted Accounting Principles (GAAP) accounts for
credit impairment using an "incurred loss" approach, which requires
recognition of the credit loss to be deferred until the loss is probable
(or has been incurred). Many have argued that the incurred loss
approach fails to alert investors about credit losses in a timely
The decision to issue the final standard followed extensive stakeholder
outreach. The FASB received more than 3,360 comment letters on a 2010
Exposure Draft and a 2012 Exposure Draft. The FASB participated in more
than 95 meetings with financial statement preparers; and hosted 8 public
roundtables, and 15 preparer workshops. In addition, the FASB met with
more than 200 users of financial statements.
It is expected that the final standard will be published in June 2016,
giving preparers enough time to review and prepare for the changes by
the effective dates.
More information about the upcoming Credit Losses ASU, and the Transition Resource Group for Credit Losses, is available at www.fasb.org.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector,
not-for-profit organization based in Norwalk, Connecticut, that
establishes financial accounting and reporting standards for public and
private companies and not-for-profit organizations that follow Generally
Accepted Accounting Principles (GAAP). The FASB is recognized by the
Securities and Exchange Commission as the designated accounting standard
setter for public companies. FASB standards are recognized as
authoritative by many other organizations, including state Boards of
Accountancy and the American Institute of CPAs (AICPA). The FASB
develops and issues financial accounting standards through a transparent
and inclusive process intended to promote financial reporting that
provides useful information to investors and others who use financial
reports. The Financial Accounting Foundation (FAF) supports and oversees
the FASB. For more information, visit www.fasb.org.