The Financial Accounting Standards Board (FASB) in the US has released a proposed Accounting Standards Update (ASU) aimed at refining the measurement of credit losses for accounts receivable and contract assets for private companies and certain not-for-profit entities.
Stakeholders are urged to review and provide input on the proposed ASU by 17 January 2025.
The FASB, in collaboration with the Private Company Council, initiated this project to address difficulties in applying the guidance in Topic 326, Financial Instruments—Credit Losses (CECL).
Private companies and not-for-profit entities have reported that estimating expected credit losses for these balances is often costly and complex.
Stakeholders have highlighted challenges in identifying, analysing, and documenting macroeconomic data for developing forecasts, which often do not materially affect allowances for shorter-term receivables.
Estimating expected credit losses for current accounts receivable and contract assets is claimed to require effort, even for assets collected before financial statement issuance.
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By GlobalDataThe proposed ASU amendments introduce a practical expedient and an accounting policy election for private companies and certain not-for-profit entities.
These changes pertain to the application of CECL to current accounts receivable and contract assets arising from revenue transactions.
The latest ASU states: “The proposed amendments are expected to reduce the time and effort necessary to analyse and estimate credit losses for current accounts receivable and current contract assets without reducing the decision usefulness of this information for investors and other financial statement users.”
In November 2024, FASB released an ASU to enhance guidance on induced conversion of settlements of convertible debt instruments.
This involved the FASB Accounting Standards Codification Subtopic 470-20, Debt—Debt with Conversion and Other Options.
