The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that addresses issues raised by stakeholders during the implementation of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
 
“After issuing the current expected credit losses standard—also known as CECL—in 2016, the FASB received questions about certain confusing areas of the guidance,” explained FASB Chairman Russell G. Golden. “The new ASU clarifies these areas of the guidance to ensure all companies and organizations can make a smoother transition to the standard.”
 
Among other narrow-scope improvements, the new ASU clarifies guidance around how to report expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial writeoff 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 the credit losses standard, stakeholders questioned whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known as PCD assets).
 
In response to this question, the ASU permits organizations to record expected recoveries on PCD assets.
 
In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities.
 
The ASU is available at www.fasb.org