Tentative Board Decisions
Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.
September 3, 2014 FASB Board MeetingFinancial Instruments—Impairment. The Board continued redeliberating its December 2012 proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), specifically discussing the following issues: (1) when an entity should write off a financial asset, (2) how an entity considers extensions, renewals, and modifications in estimating expected credit losses, and (3) the appropriate period an entity should consider for estimating expected credit losses on loan commitments.
When an Entity Should Write Off a Financial Asset
The Board decided to forgo the writeoff guidance in the proposed Update and instead retain the existing writeoff principle in GAAP, which requires an entity to write off financial assets in the period in which the financial assets are deemed uncollectible. Since the revised credit impairment approach for debt securities classified as available-for-sale (AFS) will also include an allowance approach, the Board decided that entities should also apply this writeoff principle to AFS debt securities.
Consideration of Extensions, Renewals, and Modifications
The Board affirmed its previous decision that when estimating contractual cash flows to be collected, an entity should consider expected prepayments, but should only consider expected extensions, renewals, and modifications when the entity reasonably expects that it will execute a troubled debt restructuring with the borrower.
Estimating Expected Credit Losses on Loan Commitments
For the funded portion of loan commitments, the Board decided that expected credit losses should be estimated in the same manner as for other loans. That is, an entity should consider all contractual cash flows over the expected life of the loan. As with other loans, an entity should consider expected prepayments, but not expected extensions, renewals, or modifications unless the entity reasonably expects to execute a troubled debt restructuring with the borrower.
The Board also affirmed its previous decision that the expected credit losses for unfunded loan commitments should reflect the full contractual period over which the entity is exposed to credit risk via a present legal obligation to extend credit, unless unconditionally cancellable by the issuer.
Disclosure Framework: Disclosure Review—Fair Value Measurement. The Board discussed potential changes to fair value measurement disclosure requirements on the basis of the concepts and decision questions in the proposed FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements.
The Board made no technical decisions.