In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Previously, companies generally recognized credit losses when it was probable that the loss has been incurred. The revised guidance removes all recognition thresholds and requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. NDS 2016-03 summarizes the amendments in ASU 2016-13.
The amendments in ASU 2016-13 are currently effective for “public business entities,” as defined. All other entities, including not-for-profit entities and employee benefit plans within the scope of ASC 960 through 965 on plan accounting, will be required to adopt the guidance in ASU 2016-13 for fiscal years and for interim periods within those fiscal years beginning after Dec. 15, 2022. Early adoption of the guidance is permitted for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years.