Industry Insights

New Impairment Rules for M&D Trade Receivables

September 2016
Author:  Anne Coughlan

Anne Coughlan

Director

Audit

201 N. Illinois Street, Suite 700
P.O. Box 44998
Indianapolis, IN 46244-0998 (46204)

Indianapolis
317.383.4000

Executive Summary

The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. While the biggest impact is on financial institutions, manufacturing and distribution (M&D) companies also will be affected, as the ASU’s scope covers loans, debt securities and trade and lease receivables. Some changes for receivables are subtle, and long-dated receivables will be subject to new disclosure. At inception and each reporting date, entities will recognize an allowance for lifetime expected credit losses for instruments within the ASU’s scope, which includes trade and lease receivables. FASB has broadened the information an entity is required to consider in developing its credit loss estimate. The ASU requires the loss estimate to include relevant information about past events, current conditions and reasonable and supportable forecasts.

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