As it develops its own accounting approach apart for the International Accounting Standards Board for financial instrument impairments, or mark downs, the Financial Accounting Standards Board has reached some new tentative decisions about disclosure requirements it wants to propose.
The FASB parted ways with the IASB in August when it raised concerns about the three-bucket model the boards were developing. Based on feedback from U.S. constituents, FASB said it needed to step back and revise the approach for U.S. Generally Accepted Accounting Principles. The board heard from U.S. stakeholders that the three-bucket credit impairment model would be difficult to understand and put into practice, not to mention difficult to audit.
FASB developed instead a model it calls the current expected credit loss model, still retaining many of the key concepts the boards had both developed and agreed upon earlier. However, FASB's model uses a single-measurement objective, the current estimate of expected credit losses, rather than a dual measurement approach and a transfer system where assets would move in and out of the three buckets originally described.
FASB recently determined that it plans to require disclosure of expected credit loss calculations to include both a discussion of the inputs and assumptions that an entity considers as it estimates its expected credit loss and how the information is developed and used in measuring the expected credit loss. Where inputs and assumptions rely on forecasts, those would need to be described as well.
The board determined that allowance narrative disclosures should include a discussion of the changes in credit loss expectations and the reason for those changes, as well as a description of any changes in estimation techniques that are used and the reasoning behind those changes. Companies would also be explain any significant amount of write-offs.
With respect to the roll forward of financial assets, FASB says companies should provide a good distinction between financial assets that are classified at amortized cost and those that are classified at fair value with changes in value flowing to other comprehensive income rather than net income. The board also would like to see disclosures around where companies use the practical expedient for assets measured at fair value with changes to other comprehensive income. The board also mapped out some specific disclosure ideas related to nonaccrual assets, purchased credit-impaired assets, and collateral disclosures.
FASB tenatively expects to issue a new exposure draft in the fourth quarter of 2012.