Impact of economic disruption on expected credit losses

Economic disruption has resulted in Q1 2020 from the coronavirus and an oil pricing dispute. KPMG explains the effects of the disruption on expected credit losses when a company adopts the new credit loss standard.

Applicability

Companies adopting the credit losses standard

Relevant dates

• ASC 326 is effective on January 1, 2020 for public business entities that are not eligible to be smaller reporting companies and that have a calendar year-end, with early adoption available for other companies.

Key impacts

• Economic disruption has resulted from reactions to the novel coronavirus (COVID-19) and a price dispute among two of the world’s three largest oil producers.
• We believe that the economic disruption resulting from COVID-19 and the decline in oil prices during the first quarter should not be reflected in a company’s estimate of credit losses under ASC 326 as of January 1, 2020 (i.e. its ‘transition adjustment’). 

Report contents

• Background and impacts on expected credit losses