Post-Implementation Review Projects
The FASB’s Post-Implementation Review (PIR) staff is currently reviewing the following Accounting Standards Updates:
Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Under the new guidance, the allowance for credit losses is a valuation account that is deducted from (or added to) the amortized cost of the financial asset to present the net amount expected to be collected.
The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.
The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The standard does not require a specific credit loss method, allowing an organization to use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.
Most organizations should be able to leverage existing systems and processes to comply with the new standard, and organizations will not need to forecast economic conditions over the entire contractual life of financial assets if those forecasts are not supportable.
The allowance for credit losses for purchased credit deteriorated (PCD) assets that are measured at amortized cost is determined in a similar manner to other financial assets measured at amortized cost; however, the initial allowance for credit losses is added to the purchase price rather than recording credit loss expense.
The amendments in the Update also will expand upon the current credit quality disclosures by further disaggregating the reported amounts by their year of origination. This increased transparency will help investors and other financial statement users to better understand the credit quality and trends of asset portfolios.
Under the amendments in the Update, credit losses for available-for-sale debt securities are recorded through an allowance for credit losses, which allows subsequent reversals in credit loss estimates to be recognized in current income. In addition, the allowance on available-for-sale debt securities is limited by the amount in which the fair value is less than the amortized cost.
Accounting Standards Update No. 2016-02, Leases (Topic 842)
Under the new guidance, organizations that lease assets—referred to as “lessees”—are required to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.
The amendments in the Update require that a lessee recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.
However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet— the amendments in the Update require both types of leases to be recognized on the balance sheet.
The amendments also require disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases. Those disclosures include qualitative and quantitative requirements, which provide additional information about the amounts recorded in the financial statements.
The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting—remain largely unchanged from current GAAP. However, the amendments in the Update contain some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the amendments in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Senior Project Manager
FASB Practice Fellow
FASB Practice Fellow
Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)
The objective of the new guidance is to establish principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers. The new guidance:
- Removes inconsistencies and weaknesses in existing revenue requirements
- Provides a more robust framework for addressing revenue issues
- Improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets
- Provides more useful information to users of financial statements through improved disclosure requirements
- Simplifies the preparation of financial statements by reducing the number of requirements to which an organization must refer.
FASB Practice Fellow