The Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2020-03 to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. ASU 2020-03 was issued separately from FASB’s other Codification improvement projects to address specific areas brought to the board’s attention by stakeholders.
“The FASB decided to issue this financial instruments ASU separate from other Codification improvements to increase stakeholder awareness of the changes and to expedite the improvement process,” said Chairman Russ Golden.
The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies; and they are narrow in scope and are not expected to significantly change practice for most entities. The amendments have different effective dates.
Among its provisions, the ASU clarifies that all entities other than public business entities that elected the fair-value option are required to provide certain fair-value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326.
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