Project Update

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

Last updated on June 23, 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. Please refer to the main Accounting for Financial Instruments project page for additional information related to all aspects of the Accounting for Financial Instruments project.

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

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

The IASB issued an Exposure Draft, Financial Instruments: Expected Credit Losses, on March 7, 2013. The comment period ended on July 5, 2013.
The IASB issued an Exposure Draft, Amortised Cost and Impairment, on November 5, 2009. The comment period ended on June 30, 2010.

*Decisions Reached at the Last Meeting (June 11, 2014)

The Board discussed the impairment of financial assets subsequently identified for sale and certain beneficial interests in securitized financial assets.

Loans Subsequently Identified for Sale

Topic 310, Receivables, requires an entity to transfer loans into the held-for-sale classification and carry those loans at the lower of cost or fair value once it has decided to sell loans not previously classified as held-for-sale. The Board decided that upon transfer, an entity should retain the amortized cost basis (excluding the allowance for expected credit losses) as the loan’s cost basis and recognize a valuation allowance equal to the amount by which the amortized cost basis exceeds fair value.

Debt Securities Subsequently Identified for Sale

For a debt security subsequently identified for sale, the Board decided that an entity should adjust its impairment allowance for the debt security to be equal to the difference between the debt security’s fair value and its amortized cost basis.

Certain Beneficial Interests in Securitized Financial Assets

The Board decided that an entity should measure and recognize an allowance for expected credit losses on purchased or retained beneficial interests for which there is a significant difference between contractual and expected cash flows consistent with how an entity should recognize and measure the allowance for purchased credit-impaired assets. In addition, changes in expected cash flows due to factors other than credit should be accreted into interest income over the life of the asset (that is, the difference between contractual and expected cash flows attributable to credit would not be included in interest income).

*Tentative Board Decisions to Date (as of June 11, 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 on Exposure Drafts issued.

As it continues redeliberations, the FASB will consider any follow-on issues as a result of its decision on financial assets measured at FV-OCI, such as the need for unit-of-account guidance for measuring expected credit losses.

The IASB is currently in the balloting process for the new issuance of IFRS 9 Financial Instruments, incorporating the final requirements for impairment.

Click here to access the IASB's impairment page for more information about the IASB’s project plan and a summary of the IASB's decisions reached to date.

*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.

*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.

Background

The impairment project began in 2008 with the IASB and FASB developing and ultimately issuing separate impairment models in 2009 and 2010, respectively. The IASB model was an expected cash flow approach which resulted in an effective interest rate which integrated credit loss expectations. The FASB model eliminated the “probable threshold” for impairment recognition in current U.S. GAAP. The FASB model was based on the recognition of full lifetime expected losses upon acquisition or origination of the financial asset.

The FASB participated with the IASB in an Expert Advisory Panel (EAP) that advised the Boards on the operational issues surrounding the IASB’s Expected Cash Flow approach and the FASB’s approach for determining credit impairments. The document below provides a summary of the discussions of the EAP on the pertinent aspects of the proposed FASB credit impairment model to inform the FASB and its constituents. This paper does not contain the detailed minutes of the EAP or its final recommendations to the Boards.

Summary of EAP Discussions (as of July 2010) 

The FASB and IASB began joint redeliberations on credit impairment and interest income recognition in November 2010. On January 31, 2011, the FASB and the IASB proposed a common solution for impairment accounting by issuing a Supplementary Document –Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities—Impairment.

In response to the feedback received on the Supplementary Document, the Boards began to pursue an approach that would reflect the deterioration in the credit quality of financial assets. This approach would involve three categories of assets (i.e., a “three-bucket” approach). Similar to the approach set forth in the Supplementary Document, recognition and measurement of credit impairment losses would be based on expected losses.

After spending a considerable amount of time and effort developing the three-bucket approach, the FASB decided not to pursue an Exposure Draft on the three-bucket approach given the feedback the FASB had received on the approach. The FASB modified its decisions in response to concerns raised by constituents and issued proposed Accounting Standards Update, Financial Instruments—Credit Losses (proposed Update) in December 2012.

Background information about the accounting for financial instruments project overall is provided on the main project page.

*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