New credit impairment standard, hedge accounting proposal on the way

Published on May 03, 2016

The FASB hopes to issue a new credit impairment standard in the second quarter of 2016 that would require entities to estimate and recognize an allowance for lifetime expected credit losses for loans, trade receivables, held-to-maturity debt securities and certain other financial assets measured at amortized cost. Estimating an allowance for lifetime expected losses would likely require changes in the processes, systems and controls entities use to estimate incurred losses today. The FASB recently held a public meeting with community bank preparers, auditors and banking regulators to discuss the banks’ concerns about the potential complexity in measuring expected losses on loans.

The FASB also plans to propose amendments to its hedge accounting guidance in the second quarter that are aimed at making hedge accounting easier for companies to apply and for users of the financial statements to understand. The Board is expected to propose, among other things, that recognition of ineffectiveness for cash flow hedges of both financial and nonfinancial items be deferred until the hedged item affects earnings.

(Source: EY AccountingLink - Financial Reporting Briefs - March 2016)