FASB Goes After "Financing Receivables"

Monday, August 03, 2009 , , , 0 Comments

More too little too late from our FASB friends. For your reading pleasure (via CFO.com):

The Financial Accounting Standards Board has issued an ambitious new plan that will dramatically increase the volume and quality of the disclosures creditors will be asked to provide with respect "financing receivables." The plan takes the form of a rule exposure draft, and according to the proposal creditors will have to disclose their allowance for credit losses associated with the financing receivables. These rules are scheduled to become effective with respect to interim and annual periods ending after December 15, 2009.

The proposed rule is entitled Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. It applies to all financing receivables held by creditors, both public and private, that prepare financial statements in accordance with generally accepted accounting principles.

For the purpose of the draft statement, financing receivables include "loans" defined as a contractual right to receive money either on demand or on fixed or determinable dates, and that are recognized as an asset regardless of whether the receivable was originated by the creditor or acquired by the creditor. The term loan, however, excludes accounts receivable with contractual maturities of one year or less that arise from the sale of goods or services. Further, there is an exception for credit card receivables, as well, and the draft rule also excludes debt securities as defined in FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.

The proposal contains several other key terms worth noting. For example, a portfolio segment is the level at which a creditor develops and documents a systematic methodology to determine its allowance for credit losses. For disclosure purposes, portfolio segments are disaggregated in the following way: (1) financing receivables within a portfolio segment that are evaluated collectively for impairment, and (2) financing receivables within a portfolio segment that are evaluated individually for such impairment.

There is still more work for creditors, in that they must again disclose management's policy for determining past-due or delinquency status, this time by class of financing receivable. For financing receivables carried at "amortized cost" that are neither past-due nor impaired, creditors will be asked to disclose quantitative and qualitative information about the credit quality of financing receivables. That includes a description of the credit quality indicator and the carrying amount of the financing receivables by credit quality indicator.

For financing receivables carried at a measurement other than amortized cost, that are neither past-due nor impaired, a creditor will have to provide quantitative information about credit quality at the end of the reporting period.

Not sure what's the point?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.