The US Financial Accounting Standards Board (FASB) has given stakeholders an extra month to comment on proposed changes to credit loss reporting.
The proposed changes, issued 20 December, would see a single “expected credit loss” measurement replace the methods currently available under US GAAP. Stakeholders now have until 31 May to submit their comments.
US GAAP’s multiple impairment models delay the recognition of the loss until it is “probable” or in fact has occurred. FASB’s proposal wants firms to use more forward-looking information, arguing that this “expected credit loss” method is more likely to alert investors to credit loss quicker.
Firms would be required to estimate expected losses on loans and other financial assets based on past events, current conditions and forecasts.
The updated loss estimate would be neither a “worst case” nor a “best case” scenario, but what contractual cash flows management does not expect to collect. The estimate would also factor in changes in the credit risk of assets held by the organization. Any loss, or gain, would then need to be reported every period.
The other major accounting standard setter, the International Accounting Standards Board (IASB), also proposed changes to the way it wants credit losses reported.
IASB’s model would require a portion of the expected credit losses to be reported every period until “significant credit deterioration” has occurred, at which time the full estimate of expected losses would need to be reported.
IASB’s comment period closes 5 July. The two boards released separate proposals after they failed to reach an agreement on the issue as they work to converge accounting standards.
“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 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.”