The Financial Accounting Standards Board (FASB) FASB has introduced an accounting policy election to reduce the costly and time-consuming operational challenges of applying the Current Expected Credit Losses (CECL) model to accounts receivable balances.
A final Accounting Standards Update could be issued as soon as the second quarter of this year. If approved, early adoption would be permitted for 2024 financial statements that have not been made available for issuance.
According to Anne Coughlan, director, Professional Standards Group at forvis mazars, Accounting Standards Codification (ASC) 326 requires the credit loss estimate to include relevant information about past events, current conditions, and reasonable and supportable forecasts. “For periods when an entity is unable to make a reasonable and supportable forecast, it would revert to historical credit loss experience,” she wrote in an information brief from the firm. “An entity is required to consider adjustments to data if management expects current conditions and reasonable and supportable forecasts to differ from the historical data evaluated.”
Those adjustments may be qualitative in nature and should reflect changes related to relevant data (such as changes in unemployment rates, property values, commodity values, or delinquency) during the forecast period. ASC 326 currently prohibits an entity from considering collections received after the balance sheet date when developing its expected credit loss estimate, she wrote.
This does not eliminate the requirement for an entity to consider reasonably available information that affects collectability, such as adjustments to historical loss information if current conditions differ from the conditions that existed during the historical period used, e.g., pre and post COVID, Coughlan wrote. An entity also would be required to reflect specific information expected to have an effect on the collectability of outstanding receivables, e.g., if the entity has identified a customer experiencing financial distress.
The proposal would introduce a new practical expedient, permitting entities to use historical loss information without adjusting for changes in economic data when developing a reasonable and supportable forecast. In other words, entities can assume that current economic conditions as of the balance sheet date will continue throughout the reasonable and supportable forecast period.
You can read more about it at … https://www.forvismazars.us/getmedia/12327473-dcf8-4713-ade1-ced510aa9929/Private-Companies-and-NFPs-May-Get-CECL-Relief-for-Accounts-Receivables.pdf
