The FASB and IASB both recently issued proposals on financial instruments impairment for public comment. On this PwC webcast, we provide an overview of the key elements of both proposals (including the FASB's FAQ) and compare and contrast them.
The FASB and IASB both recently issued proposals on financial instruments impairment for public comment. In addition, the FASB issued a Frequently Asked Questions document that supports its proposal. Impairment is one part of the FASB and IASB’s broader financial instruments project, along with classification and measurement and hedge accounting.
While the FASB and IASB aren’t currently aligned, both are proposing models based on “expected” as opposed to “incurred” losses. A key difference in the FASB’s approach is that it does not require a “threshold” to be met before recording a lifetime expected credit loss. The IASB’s model requires a significant increase in the credit risk associated with the asset before recording a lifetime expected credit loss.
Both proposals apply to loans and other financial assets, including debt securities, certain loan commitments, and lease receivables. The FASB proposal also applies to trade receivables and reinsurance recoverables; the IASB proposal also applies to certain financial guarantee contracts. As a result of the broad scopes, the proposals impact not only banks, but all institutions holding these financial assets.
Comments on the FASB proposal are due on May 31, 2013 and comments on the IASB proposal are due on July 5, 2013.
On this webcast, we provide an overview of the key elements of both proposals (including the FASB's FAQ) and compare and contrast them.
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