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Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.
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:
Accounting Standards Update No. 2016-13
Issued: June 16, 2016
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