Impairment is a major component of the FASB and IASB's (the boards’) joint project to revisit most aspects of financial instruments accounting. In the aftermath of the recent financial crisis, the current incurred loss approach has been criticized for delaying the recognition of credit losses. As a result, many constituents believe revisions to the current impairment model are necessary.
The FASB has completed redeliberations on its proposed impairment model, referred to as the "current expected credit loss" (CECL) model. In December 2012, the FASB issued for public comment its proposed Accounting Standards Update (ASU), Financial Instruments—Credit Losses (Subtopic 825-15). The ASU proposes recognition of the full expected credit loss on financial instruments that fall within its scope. The comment period ends on April 30, 2013.
The IASB has completed redeliberations on its proposed model, previously referred to as the "three bucket" model and now known as the "credit deterioration" model. The IASB's model differs from the FASB’s model in several key areas. The IASB is expected to issue its exposure draft in the first quarter of 2013.
This Dataline looks at the FASB's CECL model, and draws comparisons to the IASB's credit deterioration model throughout.