Defining Issues  |  June 2019

FASB proposes narrow-scope improvements to the credit losses standard

The proposed ASU includes several proposed amendments to the financial instrument standard. The proposals that would extend the recovery guidance to purchased financial assets with credit deterioration are likely to be of particular interest. 

Applicability

Proposed ASU

  • Companies that hold financial instruments in the scope of the credit losses standard

Relevant dates

  • June 27, 2019 – FASB issued proposed ASU
  • July 29, 2019 – Comments due on proposed ASU

Key impacts

The more significant proposals clarify the following: 

  • The FASB previously decided to include expected recoveries of financial assets previously written off and expected recoveries of financial assets expected to be written off in the estimate of expected credit losses
  • This proposal clarifies that the scope of that guidance also extends to purchased financial assets with credit deterioration
  • Expected recoveries for purchased financial assets with credit deterioration could not exceed the aggregate amount previously written off or expected to be written off
  • Recoveries, or expected recoveries, of the unamortized noncredit discount or premium would not be included in the allowance for credit losses

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