Thursday, January 13, 2011

FASB, IASB To Propose Joint Approach For Accounting For Credit Losses

Earlier today, FASB and the IASB announced they plan to revamp their previously differing proposals on accounting for credit losses, and publish for public comment a joint proposed approach later this month.

Differences between the board's earlier proposals proved controversial, in part due to the desire to move toward convergence long-term. Here is the comment letter filed by FEI's Committee on Corporate Reporting on the IASB's earlier proposal, and CCR's comment letter on FASB's earlier proposal on financial instruments, including credit impairment.

As noted in today's IASB-FASB joint press release:

The [IASB and FASB] boards will propose an impairment model based on accounting for expected losses. This approach provides a more forward looking approach to accounting for credit losses. It builds on the work of the Expert Advisory Panel, an external group comprising risk management experts that was set up to consider how to address the operational difficulties of applying an expected loss model.

The proposals respond to requests by the Group of 20 (G20) Leaders, the Financial Stability Board, the Basel Committee on Banking Supervision and others for the IASB and the FASB to reach a common solution for impairment accounting.

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