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Journal entry — Financial instruments — FASB makes tentative decisions about credit impairment disclosures

Published on: Feb 12, 2015

At its meeting yesterday, the FASB continued to redeliberate the disclosure requirements in its proposed credit impairment guidance.

Available-for-Sale Debt Securities

In a manner consistent with its tentative decision to retain existing recognition and measurement requirements of U.S. GAAP for available-for-sale (AFS) debt securities,1 the Board voted to retain existing U.S. GAAP disclosure requirements. Further, the existing AFS disclosure requirements will be amended to incorporate the general principles of the Board's December 2012 proposal2 on disclosing credit risk related to such assets.

Rollforward of Amortized Cost

In a change from the FASB’s December 2012 proposal, an entity would not be required to provide rollforward disclosures of the amortized cost balances of its debt instruments. Instead, an entity would be required to disclose credit-quality indicators for each asset class, disaggregated by vintage, for a period not to exceed five years (although upon transition, the entity would be required to provide this disclosure only for the current and prior-year amortized cost balances). The disclosure would be required for annual and interim periods and would not be required for an entity’s revolving lines of credit.

Editor’s Note: The FASB’s decision not to require the amortized cost rollforward disclosure is in response to the concerns raised by financial statement preparers about the operational challenges in providing such information. The FASB believes that disclosing credit-quality information disaggregated by asset class and by vintage would be operationally easier for financial statement preparers and would provide financial statement users with information similar to that provided in a rollforward of the amortized cost balance. Because the FASB’s tentative decision to require this new disclosure has not been exposed for public comment, the Board directed its staff to conduct significant outreach activities to obtain feedback from financial statement users, preparers, and other stakeholders on the proposed requirement.

Rollforward of Allowance for Expected Credit Losses

The FASB affirmed the provision in the December 2012 proposal that would require an entity to provide a rollforward of its allowance for expected credit losses.

Definition of Originations

The FASB decided to define originations as (1) cash-funded loans or (2) refinancings or restructurings of loans that are considered “new” under ASC 310-20-35-9 through 35-12.

Financial Guarantee Contracts

The FASB decided that an entity would be required to provide the same disclosures for financial guarantee contracts within the scope of the credit impairment guidance as those provided for loan commitments.

Programmatic Loans

The FASB decided that not-for-profit entities would be required to comply with the disclosure requirements in its credit impairment guidance on programmatic loans.

Reinsurance Receivables

The FASB decided that an entity would be required to provide all of the disclosures specified in the credit impairment guidance on reinsurance receivables except the disclosure of credit-quality indicators for each asset class, disaggregated by vintage.

Nonpublic Business Entities

The FASB decided that nonpublic business entities would be required to comply with the disclosure requirements in its credit impairment guidance.

Next Steps

At its next meeting on credit impairment, the FASB plans to discuss transition guidance.

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1 The FASB has proposed limited changes to the impairment model for AFS debt securities in ASC 320; see Deloitte’s August 14, 2014, journal entry for more information. (For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”)

2 FASB Proposed Accounting Standards Update, Financial Instruments — Credit Losses.

Financial instruments — FASB makes tentative decisions about credit impairment disclosures Image

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