FASB Completes and Defers the Credit Loss Standard
The Financial Accounting Standards Board has voted to continue issuing a standard in June which was long awaited concerning credit losses on financial instruments and loans which is a major component of its financial instrument. In their approach of recognizing credit loan losses, IASB and FASB somehow diverged in their approach while IASB made some finalizations in the standards of financial instrument, IFRS 9 of 2014. This past January, FASB made a release of another financial instrument component on projects of financial instruments. The update on final accounting standards is expected to be published by FASB in June 2016.
On Wednesday at a meeting, the board made a decision of deferring the initial effective dates by 12 months for:
· For the public companies who meet the Securities and Exchange Commission definition, the upcoming standard will be effective for the fiscal year starting after 15th December 2019.
· Other companies will be expected to make application for guidance for fiscal year starting after 15th Dec 2020 including the interim periods in the fiscal years beginning after 15th Dec 2021.
· Early adoption will be allowed for every organization for fiscal year starting after 15th December 2018 and the interim periods in those fiscal years
FASB also voted to offer transitional and practical relief for certain organizations that disclose vintages
Previously, FASB deferred the effective dates of the converged revenue recognition standard by one year. Even then, the dates are still earlier compared to the new credit loss standards.
FASB’s next step is in completion of credit loss accounting standards that entails all the final decisions of the board. Each of the seven members of the board will share the ballot draft and they will also review it to ensure that it accurately reflects the decisions made through public deliberations. When FASB becomes content that the ballot draft reflects decisions made through the public deliberations, the draft will then be submitted for final publication to production. According to the global financial crisis, there is need for a more timely reporting of credit losses with respect to loans and other financial assets held by lending institutions, banks, public and private institutions.