Deeper disclosure: FASB's ASU to provide clearer picture of entity's credit losses, quality.

• Author: McPartlan, Michael J.
• Position: Regulationupdate

the uncertainty and fear caused by the near collapse in the financial markets and the global economy in the last several years has led to a renewed and vigorous effort to refine accounting standards, particularly regarding financial instruments and the disclosures surrounding them.

To that end, the FASB issued Accounting Standards Update (ASU) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, in July 2010 to amend FASB Accounting Standards Codification (ASC) Topic 310, Receivables.

The ASU, available at www.fasb.org, was to give financial statement users a clear picture of an entity's allowance for credit losses and the credit quality of its financing receivables through the implementation of new and amended disclosure requirements regarding, but not limited to, credit quality indicators; past due and modified financing receivables; and superior levels of disaggregated information.

The enhancing of these disclosures is intended to give users of financial statements additional information that will help them to assess and evaluate:

1. The nature and extent of an entity's credit risk within its financing receivable's portfolio.

2. The entity's basis for analyzing and assessing the risk used in estimating the allowance for credit losses.

3. The changes and basis for those changes occurring in an entity's allowance for credit losses.

   In addition, these disclosures will integrate information that is already required to be disclosed by the SEC and U.S. bank regulators to be disclosed into U.S. GAAP, and align these disclosures with those required by International Financial Reporting Standards.

   What Are The Disclosure Changes?

   The FASB observed that under U.S. GAAP the disclosures for the allowance for credit losses were presented on an aggregate basis only. The FASB also decided that users of financial statements would be better served if this information was disaggregated into further levels with the calculations of those levels disclosed. The FASB refined the term "portfolio segment" (defined below) to make it consistent with other regulatory guidance existing within the SEC, the Federal Financial Institutions Examination Council and other regulators.

   ASU 2010-20 requires disclosures about financing receivables to be disaggregated by either portfolio segment or class of financing receivables.

   Portfolio segment is defined as "the level sat which an entity develops and documents a systematic methodology to...