The FASB Proposes Amendments to CECL

The FASB issued a proposed Accounting Standards Update (ASU) that proposes narrow-scope amendments to CECL. Specifically, it addresses items raised by stakeholders in implementing ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 is also known as CECL. Stakeholders are encouraged to review and provide input on the proposed amendments to CECL by July 29, 2019.

The Issue

A negative allowance describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. While applying CECL, stakeholders questioned whether negative allowances were permitted on assets that had already shown credit deterioration at the time of purchase (also known as PCD assets).

Proposal

The proposed amendments to CECL permits organizations to record negative allowances on PCD assets.

In addition, the proposed amendments to CECL also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities.

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CCH ARM Editorial

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