• FASB Asset Impairment Comment Deadline May Be Extended
  • April 4, 2013
  • Law Firm: Jones Walker LLP - Washington Office
  • The Financial Accounting Standards Board ("FASB") is considering extending the comment period on a proposal considered one of the primary drivers of the financial crisis. The FASB is scheduled to meet March 28, 2013, to decide whether to allow more time for public comment in response to Proposed Accounting Standards Update ("ASU") No. 2012-260 Financial Instruments—Credit Losses (Subtopic 825-15) (the "Proposal").

    The Proposal calls for earlier recognition of credit quality declines in loans, debt securities, and other receivables. It requires financial institutions and other companies to record expected asset losses on the basis of an estimate, as opposed to requiring recognition of losses only when such losses have actually occurred, as current accounting standards permit. After the financial crisis, critics said current accounting standards allowed financial institutions to show a more favorable picture of their condition and losses.

    The FASB released its plan in December 2012. On March 7, 2013, the International Accounting Standards Board ("IASB") published its own version, Exposure Draft No. 2013-3, Financial Instruments: Expected Credit Losses. Each proposal shares an underlying goal—reporting expected losses rather than losses actually incurred—but differs with respect to mechanics. The FASB desires an assessment and estimate of losses over the lifetime of an asset. The IASB prefers a shorter impairment horizon, basing its required impairment forecast and estimate on expected losses over the next 12 months.

    The FASB’s comment deadline is April 30, 2013. Several letters posted to the FASB’s website have called on the U.S. Board to extend its deadline, giving businesses, investors, and auditors more time to compare and consider each proposal and its long-term effects on U.S. companies’ financial condition and reporting and competitiveness.