Summary of Board decisions 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 are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue an Accounting Standards Update.

October 10, 2012 FASB Board Meeting

Accounting for financial instruments: impairment. The Board discussed modifications, reexposure of the revised credit impairment model, and transition guidance for the Current Expected Credit Loss (CECL) model.


The Board tentatively decided to move forward with the CECL model without broadly reconsidering the accounting for modifications. Accordingly, the Board tentatively decided that the CECL model would apply to all modified instruments, where expected credit losses are (1) based on the expected shortfall in contractual cash flows (that is, the contractual cash flows to which the entity is legally entitled post-modification) and (2) discounted using the effective interest rate post-modification. To accomplish this, the guidance in Subtopic 310-40 would be amended to require that when an entity executes a troubled debt restructuring, the cost basis of the asset should be adjusted so that the effective interest rate post-modification is the same as the original effective interest rate, given the new series of contractual cash flows. The basis adjustment would be calculated as the amortized cost basis before modification less the present value of the modified contractual cash flows (discounted at the original effective interest rate).

Reexposure of the Revised Credit Impairment Model

The Board tentatively decided to reexpose the model in an Exposure Draft separate from its tentative proposals on the classification and measurement of financial instruments.

Transition Guidance for the CECL Model

The Board tentatively decided that the transition method for the CECL model would be a cumulative-effect approach. Under this approach, an entity would record a cumulative-effect adjustment to its statement of financial position as of the beginning of the first reporting period in which the guidance is effective.

The Board also discussed transition disclosures. The Board tentatively decided that upon transition an entity should disclose the following:
  1. The nature and reason for the change in accounting principle, including an explanation of the newly adopted accounting principle.
  2. The method of applying the adoption.
  3. The effect of the adoption on any line item in the statement of financial position, if material, as of the beginning of the first period for which the guidance is effective. Presentation of the effect on financial statement subtotals is not required.
  4. The cumulative effect of the change on retained earnings or other components of equity in the statement of financial position as of the reporting period that immediately precedes the effective date.