In June 2016, the FASB issued ASU 2016-13, Financial instruments – Credit losses (subject 326): Measurement of credit losses on financial instruments, which adds subject 326 to the codification and removes the thresholds companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables and held-to-maturity debt securities . Previously, companies generally recognized credit losses when it was probable that the loss had been incurred. The revised guidance removes all recognition thresholds and requires companies to recognize an allowance for credit losses equal to the difference between the amortized cost of a financial instrument and the amount of amortized cost the company expects to collect on the contractual life of the instrument. ASU 2016-13 also amends guidance on the measurement of credit losses for available-for-sale debt securities and beneficial interests in securitized financial assets. NDS 2016-03 summarizes changes to ASU 2016-13.
Amendments to ASU 2016-13 are currently effective for “public business entities,” as defined. All other entities, including not-for-profit entities and employee benefit plans within the scope of ASC 960-965 on plan accounting, will be required to adopt ASU 2016-13 guidance for the exercises and for the intermediate periods of these exercises. effective December 15, 2022. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
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Accounting Principles Group
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