Topic 326 amends guidance on reporting credit
losses for assets held at amortized cost basis and available for sale
For assets held at amortized cost basis, Topic
326 eliminates the probable initial recognition threshold in current
GAAP and, instead, requires an entity to reflect its current estimate
of all expected credit losses. The allowance for credit losses is
a valuation account that is deducted from the amortized cost basis
of the financial assets to present the net amount expected to be collected.
For available for sale debt securities, credit
losses should be measured in a manner similar to current GAAP, however
Topic 326 will require that credit losses be presented as an allowance
rather than as a write-down.
This Accounting Standards Update affects entities
holding financial assets and net investment in leases that are not
accounted for at fair value through net income. The amendments affect
loans, debt securities, trade receivables, net investments in leases,
off balance sheet credit exposures, reinsurance receivables, and any
other financial assets not excluded from the scope that have the contractual
right to receive cash.
This Accounting Standards Update is the final
version of Proposed Accounting Standards Update 2012-260—Financial Instruments—Credit Losses
(Subtopic 825-15), which has been deleted.
For more information, see the following:
Issued: June 16, 2016