The ASU adds to U.S. GAAP a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the CECL model, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments.
Until June 2012, the FASB and IASB jointly deliberated an expected-loss impairment model, which was broadly similar to the impairment approach in IFRS 9, Financial Instruments, issued by the IASB in 2014. In response to feedback from U.S. constituents on the joint model, however, the FASB decided to develop an alternative expected credit loss model. Accordingly, the FASB’s new credit impairment approach differs from that under IFRSs. Although both impairment models are based on expected credit losses, the FASB’s impairment model would require entities to recognize current expected credit losses for all assets, not just those for which there has been a significant increase in credit risk since initial recognition.
For more information, see Deloitte's Heads Up newsletter as well as the press release, FASB in Focus newsletter, ASU, cost-benefit analysis, and video discussion by Hal Schroeder, Marc Siegel, and Russ Golden on the FASB’s Web site.