On the Horizon

Credit Losses


The FASB plans to issue a final Accounting Standards Update (ASU) on the measurement of credit losses by the end of the first half of 2016.
The FASB plans to issue a final Accounting Standards Update (ASU) on the measurement of credit losses by the end of the first half of 2016.

The upcoming credit loss standard will use a “current expected credit loss” (CECL) approach. This proposed model will replace the “incurred loss” impairment model that currently exists for debt instruments. The new model will require banks and other lending institutions to:
  • Upon initial recognition of the debt instrument, record credit losses that are expected to occur over their estimated lifetime, and
  • Report the net carrying amount of the debt instrument to reflect management’s estimate of its collectability based on its assessment of expected credit losses.
Public businesses that meet the definition of an SEC filer will be required to apply the guidance for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Other public businesses will be required to apply the guidance for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Other organizations—including private companies, not-for-profit organizations, and employee benefit plans within the scope of FASB guidance on plan accounting—will be required to apply the guidance for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Early application of the guidance will be permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

More information can be found on the project page.


Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

The proposed ASU intended to reduce diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows.

During the first quarter of 2016, the FASB plans to issue a proposed ASU intended to reduce diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows. The proposal is based on a consensus of the Emerging Issues Task Force (EITF).

The EITF considered eight specific cash flow issues to address stakeholders’ concerns that current GAAP is either unclear or does not include specific guidance.

Those cash flow issues include:
  • Debt prepayment or debt extinguishment costs
  • Settlement of zero-coupon bonds
  • Contingent consideration payments made after a business combination
  • Proceeds from the settlement of insurance claims, excluding corporate-owned life insurance policies and bank-owned life insurance policies
  • Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies
  • Distributions received from equity method investees
  • Beneficial interests in securitization transactions, and
  • Separately identifiable cash flows (when an organization should separate a cash receipt or payment that has aspects of more than one class of cash flows) and application of the predominance principle (when an organization should classify the aggregate cash receipt or payment based on the predominant cash flow).
While the Board has a research project on its agenda to tackle cash flow classification on a broader basis, the Board is requesting that the EITF improve the comparability of the statement of cash flows within a shorter time frame.

The proposed ASU will be exposed for a 60-day comment period. The EITF expects to deliberate the comments it receives at its meeting in June 2016.

The EITF also has an issue on its agenda to address the definition of restricted cash and the classification of changes in restricted cash in the statement of cash flows. The EITF intends to continue deliberating this issue at its upcoming meeting in March 2016.

More information can be found on the project page.


Government Assistance

Stakeholders are encouraged to review and comment on the FASB’s proposal intended to increase transparency about government assistance agreements by February 10, 2016.

Stakeholders are encouraged to review and comment on the FASB’s proposal intended to increase transparency about government assistance agreements entered into by businesses and other for-profit organizations by February 10, 2016.

The proposed ASU is intended to create greater transparency around financial reporting of government assistance agreements that businesses enter into with governments.

Currently, GAAP lacks explicit guidance for government assistance received by business entities (for example, grants, low interest rate loans, loan guarantees, tax incentives, tax abatements, or the transfer of assets from governments to businesses). This has resulted in diversity of practice and inconsistency of disclosures in financial reporting about these agreements.

The proposed ASU would provide users with more information about existing government assistance agreements to help them better assess the nature of the assistance and the significant terms and conditions of the agreement.

Specifically, it would require disclosures about:
  • The types of agreements
  • The accounting for government assistance, and
  • Their effect on the business organization’s financial statements.
More information, including on how to submit comments, can be found in the proposed ASU and a FASB in Focus overview document.