Codification improvements: financial instruments—credit losses (vintage disclosure: gross writeoffs and gross recoveries). The Board began redeliberations in response to comment letters received on the proposed Accounting Standards Update, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  The Board also discussed the benefits and costs of the proposed amendments and whether to proceed to drafting a final Update for vote by written ballot.

The Board affirmed its decision to require that a public business entity disclose current-period gross writeoffs, but not gross recoveries, by year of origination within the vintage disclosure required by Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Board affirmed its decision to require a prospective transition approach and to allow early adoption. The Board decided that the amendments will be effective for fiscal years beginning after December 15, 2022.

Cost-Benefit Analysis

The Board decided that it has received sufficient information and analysis to make an informed decision on the expected costs of the amendments and that the expected benefits of the amendments justify the expected costs.

Next Steps

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.
 


Financial instruments—credit losses (Topic 326)—targeted improvements to the accounting for troubled debt restructuring for creditors. The Board began redeliberations in response to comment letters received on the proposed Accounting Standards Update, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The Board also discussed the benefits and costs of the proposed amendments and whether to proceed to drafting a final Update for vote by written ballot. The Board reached the following decisions.
 
Recognition and Measurement

The Board affirmed its decision that entities should evaluate all receivable modifications in accordance with the guidance in paragraphs 310-20-35-9 through 35-11 to determine whether the modifications represent a new loan or a continuation of the existing loan. The Board also affirmed its decision to remove the guidance in paragraph 326-20-30-6 that allows entities to consider reasonably expected renewals, modifications, and extensions in determining the contractual life of an asset over which to estimate the allowance for credit losses. The Board affirmed and clarified its intent that a discounted cash flow method would not be required to estimate the allowance for credit losses for modifications of receivables made to borrowers experiencing financial difficulty. The Board also clarified that entities would no longer be required to use the pre-modification effective interest rate if those entities continue to measure the allowance for credit losses using a discounted cash flow model.
 
Disclosure

The Board decided to require an entity to disclose modifications of receivables made to borrowers experiencing financial difficulty for all assets within the scope of Subtopic 310-10, Receivables—Overall. The Board also decided that an entity would only be required to provide disclosures for modifications that result in a direct change in the timing or amount of contractual cash flows to borrowers experiencing financial difficulty. The Board affirmed its decision to carry forward the insignificant delay in payment guidance in paragraphs 310-40-15-17 through 15-18 such that payment delays that are deemed to be insignificant do not require disclosure.  The Board decided, however, to only require a creditor to look back to modifications made in the previous 12-month period. The Board affirmed its decision to require the disclosure enhancements included in the proposed Update with minor edits, including changing the guidance in paragraph 310-10-50-40(a)(1) in the proposed Update to require period-end amortized cost basis and requiring greater disaggregation of the “combination” column required in paragraph 310-10-50-41.
 
Transition and Effective Date

The Board affirmed its decision to require prospective transition for the disclosure enhancements and prospective transition with an option for modified retrospective transition for the elimination of troubled debt restructuring recognition and measurement guidance. The Board also affirmed its decision to allow early adoption. The Board decided to make the amendments effective for fiscal years beginning after December 15, 2022, for creditors that have adopted the amendments in Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  Entities that have not yet adopted Update 2016-13 are not permitted to adopt the amendments in this Update until they have adopted Update 2016-13.
 
Cost-Benefit Analysis

The Board decided that it has received sufficient information and analysis to make an informed decision on the expected costs of the amendments and that the expected benefits of the amendments justify the expected costs.
 
Next Steps

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.



Financial instruments—credit losses (Topic 326)—acquired financial assets. The Board began initial deliberations and made the following decisions.

Acquired Asset Accounting

The Board decided to amend the accounting for acquired assets to eliminate the distinction between purchased credit deteriorated (PCD) and non-PCD assets. The Board decided to apply the PCD accounting model for acquired assets, with certain exceptions.

Scope—Asset Classes

The Board decided to exclude from the PCD accounting model credit cards and other revolving lending arrangements in which the borrower has borrowing privileges; however, it directed the staff to perform additional research on the scope of AICPA Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, including whether trade accounts receivable are excluded from that guidance. The Board also decided to exclude available-for-sale debt securities from the PCD accounting model. Lastly, the Board decided to consider whether to exclude assets not recognized at fair value, including contract assets, from the PCD accounting model at a future Board meeting.
 
Scope—Acquisition Type

The Board decided to apply the PCD accounting model to assets acquired in a business combination and in an asset acquisition.
 
Seasoning

The Board decided to incorporate an element of seasoning into the PCD accounting model for assets acquired in both a business combination and an asset acquisition to define whether an asset is an in-substance origination and, therefore, should not apply the PCD accounting model. The Board discussed initial leanings on how to define seasoning. Some Board members felt that seasoning should be principles based, whereas others preferred a rules-based, bright-line definition. Some Board members were in favor of a seasoning definition that included a combination of a principle and a bright-line assessment.

The Board discussed whether to incorporate a difference between contractual and expected cash flows into the definition of seasoning. The Board decided not to pursue further outreach and research on this area.
 
Next Steps

The Board directed the staff to perform additional research and outreach related to the accounting for acquired financial assets including:

Post-implementation review of Topic 326, Financial Instruments—Credit Losses. The Board discussed agenda requests to add a project to its technical agenda to defer the effective date of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments, for nonpublic entities.  
 
The Board decided not to defer the effective date of the Update for nonpublic entities.