Project Update

Accounting for Financial Instruments—Credit Impairment—Joint Project of the FASB and IASB

Last updated on August 28, 2014. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the IASB and the FASB (Boards). It was prepared by the staff and is for the information and convenience of their constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.


Project Objective and Background
Due Process Documents
*Decisions Reached at the Last Meeting
*Tentative Board Decisions Reached to Date
Next Steps
*Board/Other Public Meeting Dates—Current
Contact Information


Project Objective and Background

This project addresses issues related to the impairment of financial assets. The objective of this project is to significantly improve the decision usefulness of financial instrument reporting for users of financial statements. The Boards believe that simplification of the accounting requirements for financial instruments should be an outcome of this improvement. The Boards’ goal is to develop a single credit loss model for financial assets that enables more timely recognition of credit losses.

Click here for the project objective and background information on the overall Accounting for Financial Instruments project.

Due Process Documents

FASB Due Process Documents

On December 20, 2012, the FASB issued a proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15). The comment period ended on May 31, 2013.
  • Download the Proposed Update on Credit Losses
  • Read the news release introducing the proposed Accounting Standards Update
  • Read the FASB In Focus which summarizes the proposed Accounting Standards Update
  • Listen to a podcast in which FASB member Tom Linsmeier provides an overview of the proposed Accounting Standards Update
  • Listen to a podcast in which FASB members Larry Smith and Hal Schroeder discuss key concepts underpinning the credit loss model in the proposed Accounting Standards Update
  • Read the Frequently Asked Questions document about the proposed Accounting Standards Update
  • Read comment letters on the proposed Accounting Standards Update
  • Read a summary of feedback received on the proposed Accounting Standards Update
On May 26, 2010, the FASB issued one comprehensive proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities—Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815). The comment period ended on September 30, 2010.
Joint Due Process Documents

On January 31, 2011, the FASB and the IASB proposed a common solution for impairment accounting, Supplementary Document—Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities—Impairment. The comment period ended on April 1, 2011.
IASB Due Process Documents

In July 2014, the IASB published the final version of IFRS 9 Financial Instruments.

IFRS 9 Financial Instruments

Click here to access the IASB's impairment project page for more information about the IASB’s deliberations.

*Decisions Reached at the Last Meeting (August 13, 2014)

The Board discussed the impairment of debt securities and clarifications to the measurement principle for the Current Expected Credit Losses (CECL) model.

Impairment of Debt Securities

The Board decided that debt securities classified as available-for-sale should be excluded from the scope of the CECL model. The Board affirmed its previous decision that the CECL model should apply to debt securities classified as held-to-maturity.

The Board decided that available-for-sale debt securities should continue to be within the scope of the impairment guidance in Topic 320. In addition, the Board decided that the impairment guidance in Topic 320 should be modified as follows:
  1. An allowance approach should be used for recognizing impairment losses, which would allow an entity to recognize reversals of credit losses.
  2. Subparagraph 320-10-35-33F(a) should be amended to remove the requirement to consider the length of time that the fair value of an available-for-sale debt security has been less than its amortized cost basis when estimating whether a credit loss exists.
  3. Subparagraph 320-10-35-33F(g) should be removed. When estimating whether a credit loss exists, an entity would not be required to consider recoveries or additional declines in the fair value of an available-for-sale debt security after the balance sheet date.
Clarifications to the Measurement Principle

The Board made the following decisions regarding clarifications to the measurement principle in the CECL model:
  1. The Board affirmed the principles of the clarifications to the measurement approach as described in the August 13, 2014 Board meeting handout. Actual wording of the clarifications is subject to change during the drafting of the final standard.
  2. The Board decided that the final standard would not explicitly state for which financial assets a zero allowance of expected credit losses would be appropriate.
  3. The Board decided to include the following collateral-based practical expedients in the final standard:
    1. For a collateral-dependent financial asset, the allowance for expected credit losses would be measured as the difference between the collateral’s fair value (adjusted for selling costs, when applicable) and the amortized cost basis of the asset.
    2. For a financial asset in which the borrower must continually adjust the amount of collateral securing the financial asset, the allowance for expected credit losses would be limited to the difference between the collateral’s fair value (adjusted for selling costs) and the amortized cost basis of the asset.
  4. When developing its estimate of expected credit losses, the Board decided that for periods beyond which the entity is able to make or obtain reasonable and supportable forecasts, an entity is allowed to revert to its historical credit loss experience over (a) the financial asset’s estimated life on a straight-line basis or (b) a period and in a pattern that reflects the entity’s assumptions about expected credit losses over that period. The Board also decided that an entity should disclose the reversion method applied in the notes to the financial statements.

*Tentative Board Decisions to Date (as of August 13, 2014) 

Tentative Board Decisions to Date During Redeliberations

Next Steps

The FASB will continue redeliberations on the CECL model, considering feedback received through comment letters and outreach activities.

*Board/Other Public Meeting Dates—Current

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*August 13, 2014 Board Meeting—Decisions regarding impairment of debt securities and clarifications to the measurement principle.
June 11, 2014 Board Meeting—Decisions about financial assets subsequently identified for sale and certain beneficial interests in securitized financial assets.
March 12, 2014 Board Meeting—Decisions about the application of the CECL model to financial assets measured at FV-OCI.
February 19, 2014 Board Meeting—Decisions about nonaccrual, purchased credit impaired financial assets, and troubled debt restructurings.
December 18, 2013 Board Meeting—Decision to continue to refine the CECL Model
September 17, 2013 Joint Board Meeting—Decisions about an entity’s estimate of expected credit losses.
July 23, 2013 Joint Board Meeting—Discussions about the feedback received on each Board’s expected credit loss proposal.
March 28, 2013 Board Meeting—Decision about whether to extend the comment letter period of the proposed Update.
November 20, 2012 Joint Board Meeting—Discussions about the FASB’s Current Expected Credit Loss Model.
October 31, 2012 Board Meeting—Decisions about issues related to the current expected credit loss model including complexity and whether to proceed with drafting a proposed Accounting Standards Update for vote by written ballot.
October 10, 2012 Board Meeting—Decisions about modifications, reexposure, and transition
October 3, 2012 Board Meeting—Decisions about disclosures for the current expected credit loss model.
September 7, 2012 Board Meeting—Decisions about accounting for loans on nonaccrual status and accounting for the impairment of debt securities and assets measured at FV-OCI.
August 22, 2012 Board Meeting—Decisions about an alternative impairment model.
August 1, 2012 Board Meeting—Decisions about exploring an alternative expected loss model.
July 18, 2012 Joint Board Meeting—Decisions about the impairment of loan commitments and financial guarantees and disclosures for the impairment model.
May 21, 2012 Joint Board Meeting—Decisions about the application of the “three-bucket” model to lease receivables.
May 9, 2012 Board Meeting—Decisions about the “three-bucket” impairment model, including application of the model to modifications of debt instruments
April 18, 2012 Joint Board Meeting—Decisions about the measurement objective and the application of the “three-bucket” model to certain trade receivables
February 28, 2012 Joint Board Meeting—Decisions about the “three-bucket” impairment model, including whether financial assets that have been transferred to Bucket 2 or Bucket 3 could be subsequently transferred to Bucket 1 and the application of the model to trade receivables
January 27, 2012 Joint Board Meeting—Decisions about the application of the “three-bucket” impairment model to purchased financial assets with an explicit expectation of credit losses at acquisition
December 14–15, 2011 Joint Board Meeting—Decisions about the “three-bucket” impairment model, including the measurement of the allowance balance in Bucket 1, the principle for when recognition of lifetime losses is appropriate, the grouping of assets, the difference between Bucket 2 and Bucket 3, and the application of the model to loans and publicly traded debt instruments
October 20, 2011 Joint Board Meeting—Decisions about initial classification of financial assets into buckets in the “three-bucket approach” for impairment of financial assets
September 21, 2011 Joint Board Meeting—Decisions about initial classification of financial assets into buckets and transfers between buckets in the “three-bucket approach” for impairment of financial assets
July 20, 2011 Joint Board Meeting—Decisions about transfers between buckets in the “three-bucket approach” for impairment of financial assets. Decisions about the measurement of expected losses for Bucket 1.
June 15, 2011 Joint Board Meeting—Decisions about a “three-bucket” impairment model for financial assets
May 18, 2011 Joint Board Meeting—Decisions about the way forward on the impairment project considering the feedback received on the supplementary document.
April 14, 2011 Joint Board Meeting—Decisions about the definition of amortized cost, interest income recognition, discounting of expected losses, and non-accrual guidance
April 13, 2011 Joint Board Meeting—Outreach and comment letter summaries on the Joint Supplementary Document on– impairment accounting.
March 29, 2011 Joint Board Meeting—Decisions about the accounting for credit impairment on purchased debt instruments.
March 22, 2011 Joint Board Meeting—Decisions about the objective of expected loss measurement.
February 17, 2011 Joint Board Meeting—Decisions about the definition of write-off for financial assets
January 18, 2011 Joint Board Meeting—Decisions about the comment period for the joint supplemental document on credit impairment of financial assets
December 16, 2010 Joint Board Meeting—Decisions about the accounting for credit impairment of financial assets
December 8, 2010 Joint Board Meeting—Discussions about various methods of accounting for credit impairment of financial assets
November 17, 2010 Joint Board Meeting—Discussions about various methods of accounting for credit impairment of financial assets
November 10, 11, 12, 2010 Joint Board Meeting—Decision about credit impairment outlook period and discussions about timing of credit impairment recognition

Click here for minutes of public meetings on the accounting for financial instruments project that were held prior to the issuance of the May 2010 proposed Update on financial instruments.

Contact Information

Stephen McKinney
Practice Fellow
scmckinney@fasb.org

Upaasna Laungani
Project Manager
ulaungani@fasb.org

Jack Pohlman
Practice Fellow
jpohlman@fasb.org

Jacob Hager
Postgraduate Technical Assistant
jmhager@fasb.org

David M. Shaw
XBRL Assistant Project Manager
dmshaw@fasb.org

Anna Rose
XBRL Project Research Associate
arose@fasb.org