FASB ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Released
On June 16, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The release of this new standard marks the end for accounting for credit losses using an incurred model. The standard will:
- Apply to most debt instruments, trade receivables, lease receivables, reinsurance receivables, financial guarantee contracts and loan commitments.
- Financial instruments measured at fair value, some equity instruments and available for sale debt securities will still be excluded.
- Entities would recognize as an allowance the estimate of contractual cash flows not expected to be collected.
- Entities would consider all available relevant information in making the estimate, including historical charge-offs and other past events, current conditions, and reasonable and supportable forecasts and their implications for expected credit losses.
- Entities would revert to an unadjusted historical credit loss experience for the period beyond which it can make its reasonable and supportable projections.
More information is available in the AICPA's Financial Instruments area of the Financial Reporting Center.