The Financial Accounting Standards Board (FASB) on Nov. 23 announced a proposed update aimed to enhance disclosures under its credit losses standard, known as CECL.
The standard (Accounting Standards Codification Topic 326) took effect for public companies (excluding smaller reporting companies) for fiscal years beginning after Dec. 15, 2019, and is slated to become effective for all other entities for fiscal years beginning after Dec. 15, 2022.
As part of its post-implementation review process, FASB held a CECL roundtable in May. The virtual event offered preparers who adopted the standard last year a forum to discuss issues they faced, most notable of which were tied to the effects of the ongoing COVID-19 pandemic.
Also addressed during the discussion was troubled debt restructuring (TDR) as an area that could benefit from additional accounting guidance. FASB’s new proposal comes in response to the feedback.
“Investors and other stakeholders questioned the relevance of the [TDR] designation and the decision usefulness of disclosures about those modifications,” FASB said in a press release. “Some noted that measurement of expected losses under the CECL model already incorporates the forward-looking aspects of the TDR model and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications.”
The proposed update would eliminate accounting guidance for TDRs by creditors in Subtopic 310-40 (Receivables—Troubled Debt Restructurings by Creditors). Instead, an entity would apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan.
The FASB update would also clarify that current-period gross writeoffs be disclosed by year of origination for financing receivables and net investment in leases—an area of confusion cited by stakeholders under the current standard.
Comments on FASB’s proposal are due by Dec. 23. For entities that have already adopted the CECL standard, an effective date for the update would be determined following feedback received during the comment period. For all other entities, the update would be effective at the same time as adoption of the standard.
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