In March 2013, the IASB an exposure draft (ED), Financial Instruments: Expected Credit Losses, that proposes an expected loss model to replace the current incurred loss model of IAS 39,Financial Instruments: Recognition and Measurement. It seeks to address the criticisms of IAS 39, in particular, that impairment losses may be recognized “too little and too late.” In December, 2012, the FASB also released a proposal on impairment of financial assets. The FASB and IASB models are both based on expected, as opposed to incurred, losses. Thus, impairment losses will likely be larger and recognized earlier under the proposed models. A key difference is that the FASB would not require a threshold to be met before recording a lifetime expected credit loss. The IASB would require a significant increase in the credit risk associated with the asset before recording such a loss.
Comments on the IASB's ED are due on July 5, 2013. Comments on the FASB's proposal are due May 31, 2013. Although the FASB and IASB’s comment deadlines differ, we expect them to jointly consider the comments they receive. Constituents that will be significantly affected by the proposed changes may wish to start evaluating the IASB’s proposal now with this in mind. To assist you in understanding the proposed changes, this Dataline looks at the IASB's proposal and compares it to the IAS 39 model and the FASB's proposal.