Thomson Reuters Offers Guidance on New Impairment Guidelines for Financial Instruments

21 December 2017

The latest topic added to Thomson Reuters Checkpoint Catalyst: US GAAP, Financial Instruments -- Impairmentprovides detailed practical guidance on the new Financial Accounting Standards Board impairment guidelines for financial instruments that require an entity to provide earlier recognition of estimated credit losses. The topic covers both the current expected credit loss (CECL) model for financial assets measured at amortized cost and targeted improvements to the existing impairment rules for available-for-sale debt securities.

In June 2016, the FASB released its final guidance on impairment in Accounting Standards Update (ASU) No. 2016-13, Financial Instruments -- Credit Losses, which is considered one of the most significant accounting changes in decades to affect entities that borrow and lend money. The new accounting standard applies to any entity that records receivables and investments, or is exposed to credit risk through guarantees, commitments, and off-balance-sheet financial instruments. The earliest effective date of January 1, 2020 applies to calendar year-end companies that file periodic reports with the SEC.

“The new impairment model introduces a forward-looking component that will require high-levels of judgment and could present significant challenges for management and advisors,” said Salim Sunderji, managing director, Checkpoint, with the Tax & Accounting business of Thomson Reuters. “Implementation will require substantial work, and this new topic will help facilitate early preparation as entities and advisors face this major accounting change.”

The topic outlines the new standard’s guiding principles and covers the most significant changes to occur, such that an entity will be required to recognize an allowance for expected credit losses at origination or acquisition and that public business entities will need to disclose credit quality information for assets by vintage (year of origination). Many matters are addressed in the new topic, including how to use reasonable and supportable forecasts, select an estimation method, measure collateralized financial assets, and more.

To coincide with this latest product enhancement, Thomson Reuters has also released a Checkpoint Catalyst: US GAAP special report, Financial Instruments -- Impairment, which provides an overview of the new guidance, includes helpful examples of balance sheet presentations and covers notable matters, such as how to record an allowance for expected credit losses for beneficial interests.

The new Checkpoint Catalyst: US GAAP topic also provides practice aids such as decision tools and calculators and many instructive charts and diagrams.

Checkpoint Catalyst: US GAAP is a collection of topics that provides practical insights and expertise on accounting issues that are complex, undergoing changes or challenging to apply, including:

  • Business Combinations
  • Consolidation
  • Financial Instruments – Classification and Measurement
  • Leases
  • Revenue Recognition

To access the new topic, Financial Instruments – Impairment: visit tax.thomsonreuters.com/Checkpoint-Catalyst-US-GAAP/.

To download the special report, visit here.

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