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FASB considers feedback on proposed amendments to current expected credit losses standard

Published on: 19 Sep 2019

At its September 18, 2019, meeting, the FASB discussed stakeholder feedback on its June 27, 2019, proposed Accounting Standards Update (ASU)1 that would amend certain aspects of the Board’s new credit losses standard, ASU 2016-13.2 See Deloitte’s June 28, 2019, Heads Up for further information.

The FASB also discussed agenda requests related to clarifying the interaction between ASC 8053 and ASC 326.4

Decisions — Proposed ASU

The Board discussed the following topics related to the proposed ASU:

  • Previous conclusions — The Board reaffirmed its previous conclusions related to the proposed ASU; refer to Deloitte’s June 28, 2019, Heads Up for a summary of the conclusions reached at the FASB's June 5, 2019, meeting.

    Connecting the Dots

    The amendments in the proposed ASU clarify that entities would be permitted to record a negative allowance when measuring the expected credit losses for a purchased credit-deteriorated (PCD) financial asset, not to exceed the PCD asset’s amortized cost basis (excluding any unamortized noncredit discount or premium). The Board clarified at its September 18 meeting that negative allowances are permitted on PCD assets; however, such negative allowances are permitted to the extent they do not accelerate the accretable yield.

  • Deferral of effective date — The Board voted against a one-year deferral of ASU 2016-13, inclusive of the amendments in the proposed ASU.

    Connecting the Dots

    At its July 17, 2019, Board meeting, the FASB tentatively decided to change the manner in which it staggers effective dates for major standards and to amend the effective dates of some of its recently issued ASUs to give implementation relief to certain types of entities. Specifically, the Board tentatively decided to change the effective dates of standards related to certain Codification topics, including ASC 326. The Board subsequently issued a proposed ASU on August 15, 2019 (see Deloitte’s July 18, 2019, Heads Up). The FASB’s decision at the September 18 meeting does not affect this proposed ASU.

  • Available-for-sale (AFS) securities — The Board reaffirmed its previous decision to not permit negative allowances on AFS debt securities.

Next Steps

The Board directed its staff to draft a final ASU for a vote by written ballot.

Agenda Request — Clarification of the Interaction Between ASC 805 and ASC 326

For financial assets acquired in a business combination, entities must first determine whether those assets meet the definition of a PCD asset. ASC 326-20 provides specific initial recognition and measurement guidance for PCD assets.

Stakeholders are concerned that applying ASC 326 to financial assets acquired in a business combination that do not meet the definition of PCD financial assets could result in “double counting” expected credit losses for such financial assets. The agenda requests described that this could occur because an entity recognizes the acquired financial assets at fair value as required under ASC 805 (which inherently considers an expectation of credit losses) and would also recognize expected credit losses under ASC 326.

The Board decided to not add the above agenda request to its technical agenda.

For further information, see the meeting handout and summary of tentative Board decisions, when available.


1 FASB Proposed Accounting Standards Update, Codification Improvements to Topic 326, Financial Instruments — Credit Losses.

2 FASB Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments.

3FASB Accounting Standards Codification Topic 805, Business Combinations.

4 FASB Accounting Standards Codification Topic 326, Financial Instruments — Credit Losses.

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