Financial Instruments Projects

The Financial Accounting Standards Board (FASB) has three active financial instruments projects underway that could significantly affect financial institutions and entities with investment portfolios.

Classification & Measurement

FASB has retained the separate models in existing U.S. generally accepted accounting principles (GAAP) for determining classification and measurement of loans and debt securities.

What is changing?

Impairment – CECL Is Here to Stay

FASB proposes a single impairment model for most financial assets, replacing the multiple models available under current U.S. GAAP. One of the primary objectives of the project is more timely recognition of credit losses. The CECL model requires an allowance for impairment to be recognized at inception, representing the entity’s assessment of lifetime expected credit losses. An entity would recognize a Day 1 impairment allowance for its current estimate of contractual cash flows not expected to be collected on financial assets.

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