GAAPVolume 13, Issue 4 February 28, 2013UPDATE SERVICE.docx

GAAP
Volume 13, Issue 4 February 28, 2013
UPDATE SERVICE
GAAP
Summary & Highlights
PRONOUNCEMENT: Proposed Accounting Standards Update
(ASU), Financial Instruments—Credit
Losses (ASC 825-15) (Part 2)
EFFECTIVE DATE: Entities would be required to apply
the proposed guidance by making a
cumulative-effect adjustment in the
balance sheet as of the beginning of
the fi rst reporting period in which
the guidance would be effective. The
effective date will be established when
the fi nal guidance is issued.
The Financial Accounting Standards Board (FASB) issued the
proposed
Accounting Standards Update (ASU), Financial Instruments—
Credit Losses (ASC
825-15), on December 20, 2012. Comments on the proposal,
which are due by
April 30, 2013, may be submitted in one of the following three
ways:
1. Use the electronic feedback form on the FASB’s website at
Exposure Documents

Open for Comment;
2. Email a letter to [email protected], File Reference No. 2012-
260; or
3. Send a letter to “Technical Director, File Reference No.
2012-260, FASB, 401
Merritt 7, PO Box 5116, Norwalk, CT 06856-5116.
This is Part 2 of a two-part series discussing the proposed ASU.
In the February
15, 2013 GAAP Update Service, Part 1 covered the following
topics:
Overview;
Scope;
Recognition;
Subsequent measurement;
Other presentation matters; and
Disclosure.
2 © 2013 CCH. All Rights Reserved.
Part 2 discusses the following topics:
Implementation; and
Transition.
Analysis and Implementation
Overview
This proposal is a component of the joint project of the
Financial Accounting

Standards Board (FASB) and the International Accounting
Standards Board
(IASB) (the Boards) to revise and improve their respective
guidance on account-
ing for fi nancial instruments. The project began before the
global economic crisis
in 2008, which exposed weaknesses in the existing accounting
standards. One of
those weaknesses is the overstatement of assets due to the
delayed recognition of
credit losses related to loans and other fi nancial instruments
that were not recog-
nized until it is probable that a loss will be incurred. The
objective of the project
on accounting for the impairment of fi nancial assets is to
simplify the accounting
guidance and to provide guidance that is useful for decision-
making. Currently,
there are fi ve different models in U.S. generally accepted
accounting principles
(GAAP) for accounting for the impairment of fi nancial
instruments. A model that
includes forward-looking information is needed to assess the
impairment of fi nan-
cial instruments.
To address that issue, among others, the FASB issued the
proposed ASU,
Accounting for Financial Instruments and Revisions to the
Accounting for Derivative
Instruments and Hedging Activities, in May 2010. That
document included pro-
posed guidance on classifi cation and measurement, credit
impairment, and hedge
accounting requirements. Under that proposal, an entity would
have been required

to recognize a credit impairment when it does not expect to
collect all contrac-
tual amounts due. The IASB also issued a proposal in November
2009. As a result
of the Boards’ considerations of the comments on their
respective proposals, they
decided to develop a model that varies from the original
proposal. In January 2011,
the Boards issued a Supplementary Document, Accounting for
Financial Instruments
and Revisions to the Accounting for Derivative Instruments and
Hedging Activities—
Impairment, which was a joint proposal that introduced the
concept of two different
measurement objectives, one for a “good book” of performing
loans and another for
a “bad book” of loans. Based on comments received on that
proposal, the Boards
developed a “three-bucket model,” which would have eliminated
an initial rec-
ognition threshold, and used two different measurement
objectives for the credit
impairment allowance that would be subject to the extent of
credit deterioration
or recovery since a fi nancial instrument’s origination or
acquisition. After consid-
erable discussion with stakeholders who raised many concerns
about the three-
bucket model, the FASB decided not to proceed with that model
and has agreed
on the proposed model, which retains certain sound concepts
from other models
considered during its discussions and avoids concepts that are
complex, inoperable,
and believed to be problematic.

© 2013 CCH. All Rights Reserved. 3
Proposed ASU
The proposed guidance below would be included as new
Subtopic ASC 825-15 in
the FASB Accounting Standards Codifi cationTM (ASC) 825,
Financial Instruments.
Implementation Guidance
Estimating expected credit losses. Because estimating expected
credit losses
requires considerable judgment, the techniques used should be
practical and rel-
evant to the particular circumstances. The methods used to make
such estimates
may vary based on the type of fi nancial asset and the available
relevant informa-
tion. The following are examples of judgments and policy
elections that an entity
could make for the purpose of developing historical statistics
that would be used to
estimate its expected credit losses that have been updated for
current conditions
and supportable forecasts of the future:
The defi nition of “default” used to develop statistics based on
defaults;
The approach used to measure the amount of a “loss” in the
development of
statistics based on defaults or the rate of loss, including whether
it is based on
the amount of amortized cost written off under U.S. GAAP;

The method used to weigh historical experience (e.g., on a
volume-weighted
basis or an equal-weighted basis);
The method used to adjust loss statistics for recoveries; and
The effect of expected prepayments on the allowance for
expected credit losses
as of the reporting date.
No specifi c approaches or specifi c elections are required.
Entities would be per-
mitted to develop estimation techniques that would be applied
consistently to
accurately estimate expected credit losses by using key
principles in the proposal.
Entities would neither be required to use a probability-weighted
discounted cash
fl ow model to estimate expected credit losses nor to reconcile
the estimation tech-
nique used with a probability-weighted discounted cash fl ow
model.
Estimating expected credit losses—time value of money. Under
the proposal,
an estimate of expected credit losses would be required to refl
ect the time value of
money, explicitly or implicitly. The time value of money is
explicitly refl ected in:
A discounted cash fl ow model; or
Loss statistics based on a ratio of:
The amount of amortized cost written off because of credit loss;
and
The amount of the amortized cost basis of the asset, and by
applying the loss
statistic after it has been updated for current conditions and

reasonable and
supportable forecasts of the future to the amortized cost balance
as of the
reporting date to estimate the portion of the recorded basis of
the amortized
cost not expected to be recovered because of credit loss.
Loss-rate methods, roll-rate methods, probability-of-default
methods, and a pro-
vision matrix method using loss factors also may be used.
For collateral-dependent fi nancial assets, methods comparing
the amortized cost
basis of an asset to the collateral’s fair value may be used as a
practical expedient.
Under that method, if repayment or satisfaction of an asset
depends on the sale of
the collateral, the entity would be required to adjust the
collateral’s fair value to
consider estimated selling costs (on a discounted basis). If,
however, repayment or
satisfaction of an asset depends only on the operation of the
collateral, rather than
its sale, selling costs would not be included in estimated
expected credit losses.
Estimating expected credit losses—multiple possible outcomes.
Under the
proposal, an estimate of expected credit losses would always
have to consider the
possibility that a credit loss will occur and that no credit loss

will occur. If a range
of at least two outcomes is implicit in the method used, an
entity would not have
to identify various credit loss scenarios or estimate the
weighted probability of
expected credit losses.
Because some measurement methods (e.g., the loss-rate method,
a roll-rate
method, a probability-of-default method, and a provision matrix
method using loss
factors) use a wide-ranging population of actual historical loss
data as an input to
estimate credit losses, the requirement is met implicitly
provided that the actual
loss data include items that eventually resulted in a loss and
items that resulted
in no loss. An entity also would be able to use the fair value of
collateral (less
estimated selling costs, if applicable), as a practical expedient,
to estimate credit
losses for collateral-dependent fi nancial assets because several
potential outcomes
are considered on a market-weighted basis in the fair value of
collateral and may
result in zero expected credit losses if the collateral’s fair value
is greater than the
asset’s amortized cost basis.
Estimating expected credit losses—lease receivables. An entity
would be
required to recognize an allowance for all expected credit losses
on lease receiv-
ables recognized by a lessor in accordance with the guidance in
ASC 840, Leases.
Instead of using the contractual cash fl ows and the effective

interest rate, the cash
fl ows and discount rate used to measure a lease receivable
under ASC 840 would
be used to measure expected credit losses on lease receivables
that use a discounted
cash fl ow method.
Estimating expected credit losses—loan commitments. An entity
would be
required to recognize all expected credit losses on loan
commitments that are mea-
sured at fair value and on which qualifying changes in fair value
are recognized
in net income. To estimate expected credit losses on such loan
commitments, an
entity would estimate credit losses over the full contractual
period that the entity
is exposed to credit risk as a result of a present legal obligation
to extend credit,
unless the issuer can cancel the obligation unconditionally.
During the period of
exposure, the entity would be required to consider the following
in its estimate of
expected credit losses:
The likelihood that a loan will be funded (it may be affected by
a material
adverse change clause); and
An estimate of expected credit losses on commitments expected
to be funded.
Estimating expected credit losses—the effect of a fair value
hedge on the dis-
count rate if a discounted cash fl ow model is used. Under the
proposal, an entity
that uses a discounted cash fl ow model to estimate expected

credit losses would be
required to use the fi nancial asset’s effective interest rate. If
the carrying amount
of a recorded investment in a debt instrument has been adjusted
under the guid-
ance in ASC 815, Derivatives and Hedging (ASC 815-25-35),
for fair value hedge
accounting, the effective interest rate would be the discount rate
that associates
the present value of the debt instrument’s future contractual
cash fl ows with the
adjusted recorded investment in the debt instrument.
Disclosure—application of the term “portfolio segment.” The
following are
examples of portfolio segments:
Type of debt instrument;
Borrower’s industry sector; and
Risk rates.
Disclosure—application of the term “class of fi nancial asset.”
A class of fi nan-
cial assets would be determined based on both of the following
criteria:
Measurement attribute. Classes of fi nancial assets would fi rst
be separated based
on the model under which they are measured, for example:
Amortized cost; or

Fair value with qualifying changes in fair value recognized in
other
comprehensive income.
Entity assessment. Classes would next be separated to a level
that an entity uses
when it evaluates and monitors a portfolio’s risk and
performance for various
types of fi nancial assets. A fi nancial asset’s risk
characteristics would be consid-
ered in this evaluation.
To determine which level of its internal reporting to use as a
basis for fi nancial
statement disclosures, an entity would consider the amount of
detail users need to
understand the underlying risks of its fi nancial assets. Many
factors may be consid-
ered in deciding whether an entity needs to disaggregate its
portfolio further by the
following categories:
Categories of users:
Commercial loan borrowers;
Consumer loan borrowers; or
Related party borrowers.
Type of fi nancial asset:
Mortgage loans;
Credit card loans;
Interest-only loans;
Corporate debt securities;
Trade receivables; or
Lease receivables.
Industry sector:

Real estate; or
Mining.
Type of collateral:
Residential property;
Commercial property;
Government-guaranteed collateral; or
Uncollateralized (unsecured) fi nancial assets.
Geographic distribution:
Domestic; or
International.
Classes of fi nancial assets are usually separated by portfolio
segment, which is the
starting point for the decision regarding whether to disaggregate
further.
Disclosure—application of the term “credit-quality indicator.”
The following
are examples of credit-quality indicators:
Consumer credit risk scores;
Credit rating agency ratings;
An entity’s internal credit risk grades;
Loan-to-value ratios;
Collateral;
Collection experience; or
Other internal metrics.
Judgment should be used to determine the applicable credit-
quality indicator for

each fi nancial asset class. An entity should use the most
current information as of
the balance sheet date for the credit-quality indicator.
Transition and open effective date information. The following is
the proposed
transition and effective date for the proposed ASU:
1. The proposed guidance would be effective for fi scal years,
and interim periods
within those years, beginning on a date to be determined by the
FASB.
2. The proposed guidance would be applied as a cumulative-
effect adjustment to
the balance sheet.
3. Early application of the guidance would not be permitted.
4. The following disclosures would be required in the period in
which an entity
adopts the proposed guidance:
(a) The nature of the change in accounting principle with an
explanation of
the newly adopted accounting principle.
(b) The method used to apply the change.
(c) The effect of the adoption of a new accounting principle on
any line item
in the balance sheet, if material, as of the beginning of the fi rst
period for
which the guidance is effective. The effect on fi nancial
statement subtotals
need not be presented.

(d) The cumulative effect of a change on retained earnings or
other components
of equity in the balance sheet as of the beginning of the fi rst
period for
which the guidance is effective.
5. An entity that issues interim fi nancial statements would be
required to provide
the disclosures in (4) above in each interim fi nancial statement
of the year of
change and the annual fi nancial statement of the period of the
change.
About the Author
Judith Weiss, CPA, has been attending EITF meetings regularly
since 1991.
She was a technical manager in the AICPA Accounting
Standards Division
and a senior manager in the national offi ces of Deloitte &
Touche LLP and
Grant Thornton LLP. Ms. Weiss is also one of the authors of the
GAAP Guide.
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GAAP
Volume 13, Issue 3 February 15, 2013
UPDATE SERVICE
GAAP
Summary & Highlights
PRONOUNCEMENT: Proposed Accounting Standards Update
(ASU), Financial Instruments—Credit
Losses (ASC 825-15) (Part 1)

EFFECTIVE DATE: Entities would be required to apply
the proposed guidance by making a
cumulative-effect adjustment in the
balance sheet as of the beginning of
the fi rst reporting period in which
the guidance would be effective. The
effective date will be established when
the fi nal guidance is issued.
The Financial Accounting Standards Board (FASB) issued the
proposed Accounting
Standards Update (ASU), Financial Instruments—Credit Losses
(ASC 825-15), on
December 20, 2012. Comments on the proposal are due by April
30, 2013.
This is Part 1 of a two-part series discussing the proposed ASU.
Part 1 discusses
the following topics:
Overview;
Scope;
Recognition;
Subsequent measurement;
Other presentation matters; and
Disclosure.
The following topics will be discussed in Part 2:
Implementation;
Transition; and
Questions for respondents on the proposal.

Analysis and Implementation
Overview
This proposal is a component of the joint project of the
Financial Accounting
Standards Board (FASB) and the International Accounting
Standards Board
(IASB) (the Boards) to revise and improve their respective
guidance on account-
ing for fi nancial instruments. The project began before the
global economic crisis
in 2008, which exposed weaknesses in the existing accounting
standards. One of
those weaknesses is the overstatement of assets due to the
delayed recognition of
credit losses related to loans and other fi nancial instruments
that were not recog-
nized until it was probable that a loss will be incurred. The
objective of the project
on accounting for the impairment of fi nancial assets is to
simplify the accounting
guidance and to provide guidance that is useful for decision-
making. Currently,
there are fi ve different models in U.S. generally accepted
accounting principles
(GAAP) for accounting for the impairment of fi nancial
instruments. A model that
includes forward-looking information is needed to assess the
impairment of fi nan-
cial instruments.
To address that issue, among others, the FASB issued proposed
ASU, Accounting

for Financial Instruments and Revisions to the Accounting for
Derivative Instruments and
Hedging Activities, in May 2010. That document included
proposed guidance on
classifi cation and measurement, credit impairment, and hedge
accounting require-
ments. Under that proposal, an entity would have been required
to recognize a
credit impairment when it does not expect to collect all
contractual amounts due.
The IASB also issued a proposal in November 2009. As a result
of the Boards’ con-
siderations of the comments on their respective proposals, they
decided to develop
a model that varies from the original proposal. In January 2011,
the Boards issued
a Supplementary Document, Accounting for Financial
Instruments and Revisions to
the Accounting for Derivative Instruments and Hedging
Activities—Impairment, which
was a joint proposal that introduced the concept of two different
measurement
objectives, one for a “good book” of performing loans and
another for a “bad book”
of loans. Based on comments received on that proposal, the
Boards developed a
“three-bucket model,” which would have eliminated an initial
recognition thresh-
old, and used two different measurement objectives for the
credit impairment
allowance that would be subject to the extent of credit
deterioration or recovery
since a fi nancial instrument’s origination or acquisition. After
considerable discus-
sion with stakeholders who raised many concerns about the
three-bucket model,

the FASB decided not to proceed with that model and has
agreed on the proposed
model, which retains certain sound concepts from other models
considered during
its discussions and avoids concepts that are complex,
inoperable, and believed to
be problematic.
Proposed ASU
The proposed guidance below would be included as new
Subtopic ASC 825-15 in
the FASB Accounting Standards Codifi cationTM (ASC) 825,
Financial Instruments.
Scope
The guidance in the proposed ASU applies to all entities
holding the following
fi nancial assets that are susceptible to losses related to credit
risk and are not clas-
sifi ed at fair value through net income: (1) debt instruments
classifi ed at amortized
cost, debt instruments classifi ed at fair value with changes in
fair value recognized
in other comprehensive income, receivables from revenue
transactions under the
scope of ASC 605, Revenue Recognition, or reinsurance
receivables resulting from
insurance transactions under ASC 944, Financial Services—
Insurance; (2) lease
receivables recognized by a lessor under ASC 840, Leases; or

(3) loan commitments.
Recognition
An allowance for expected credit losses on fi nancial assets,
which is a current
estimate of all contractual cash fl ows that an entity does not
expect to collect,
would be recognized at each reporting date. As a practical
expedient, an entity
may elect not to recognize expected credit losses for fi nancial
assets measured at
fair value with qualifying changes in fair value recognized in
other comprehensive
income if both of the following conditions are met:
The individual fi nancial asset’s fair value exceeds or equals the
fi nancial asset’s
amortized cost basis; and
Expected credit losses on the individual asset are insignifi cant
based on a con-
sideration of where that asset’s credit-quality indicator is placed
in a range of
expected credit losses on the reporting date.
Estimating expected credit losses. Under the proposal, an entity
would be
required to estimate expected credit losses based on relevant
information from
internal and external sources (e.g., information about past
events, historical loss
experience with similar assets, or current conditions), as well as
the implications
for expected credit losses based on reasonable forecasts that can
be confi rmed. That
information would have to include quantitative and qualitative

factors (e.g., a
current evaluation of borrowers’ creditworthiness and the
current and forecasted
direction of the economic cycle), corresponding to the reporting
entity’s borrowers
and the environment in which the entity operates. Information
relevant to the
estimated collectability of contractual cash fl ows that is
available without excessive
cost and effort would be considered.
Estimates of expected credit losses would be required to refl ect
the time value
of money explicitly or implicitly. If expected credit losses are
estimated using a
discounted cash fl ows model, the discount rate used would be
the fi nancial asset’s
effective interest rate.
Under the proposal, an estimate of expected credit losses would
always have
to represent the possibility that a credit loss would occur and
the possibility that
it would not occur, rather than representing a worst-case
scenario or a best-case
scenario. Estimating expected credit losses based on the most
likely outcome (i.e.,
a statistical calculation) would be prohibited. Estimates would
be required to rep-
resent how credit enhancements would reduce expected credit
losses on fi nancial
assets, such as consideration of a guarantor’s fi nancial
condition or whether subor-
dinated interests could absorb credit losses on underlying fi
nancial assets. However,
an entity would not be permitted to combine a fi nancial asset

with a separate free-
standing contract intended to reduce a credit risk loss in its
estimate of expected
credit losses. Consequently, an entity would not be permitted to
offset a legally
detachable and separately exercisable contract (e.g., a credit
default swap) that
may reduce expected credit losses on a fi nancial asset or a
group of fi nancial assets
against estimated expected credit losses on the related fi nancial
asset or group of
fi nancial assets.
Recognition of changes in the allowance for expected credit
losses. The amount
of a credit loss or a reversal of previous amounts recognized in
the allowance for
expected credit losses required to adjust the allowance in the
balance sheet for
the current period would be recognized in the income statement
as a provision for
credit losses.
Interest income. Except for the guidance in this section, the
proposed guidance
in ASC 825-15 would not address how a creditor should
recognize interest income.
An entity that recognizes interest income on purchased credit-
impaired fi nancial
assets, which are defi ned in the ASC Glossary as “[a]cquired
individual fi nancial

assets…that have experienced a signifi cant deterioration in
credit quality since
origination, based on the assessment of the acquirer…” would
not be permitted to
recognize interest income on the discount embedded in the
purchase price as a result
of the acquirer’s assessment of expected credit losses at the
acquisition date. An
entity would be required to discontinue the accrual of interest
income when it is not
probable that the entity will receive substantially all of the
principal or substantially
all of the interest and would be required to account for
payments as follows:
1. Payment of substantially all of the principal is not probable.
An entity would be
required to recognize all cash receipts from a debt instrument as
a reduction in
the asset’s carrying amount. Payments received after the
carrying amount has
been reduced to zero would be recognized in the allowance for
expected credit
losses as recoveries of amounts written off in previous periods.
Payment in excess
of amounts written off would be recognized as interest income.
2. Payment of substantially all of the principle is probable but
payment of substantially all
of the interest is not probable. An entity would be required to
recognize interest
income on a debt instrument when cash payments are received.
Cash receipts
in excess of interest income that would be recognized in the
period if the asset
had not been placed on nonaccrual status would be recognized

as a reduction of
the asset’s carrying amount.
If the conditions in (1) and (2) no longer exist, interest income
would be rec-
ognized in the manner it had been recognized before those
conditions occurred.
Subsequent Measurement
Writeoffs. When an entity determines that it has no reasonable
expectation of
future recovery of the carrying amount of a fi nancial asset, it
would directly reduce
its cost basis in the fi nancial asset or portion thereof in the
period in which that
determination is made. The entity also would reduce the balance
of the allowance
for expected credit losses by the amount of the fi nancial asset’s
balance that was
written off. A recovery of a fi nancial asset that had been
written off in a previous
period would be recognized as an adjustment of the allowance
for expected credit
losses only if consideration is received to satisfy some or all of
the contractually
required payments.
Other Presentation Matters
The fi nancial statement presentation of estimates of expected
credit losses for

recognized fi nancial assets under the scope of ASC 825-15
would be as follows:
Financial assets measured at amortized cost. The estimate of
would be presented in the balance sheet as an allowance
reducing the assets’
amortized cost.
Financial assets measured at fair value with changes in fair
value recognized in compre-
hensive income. The estimate of expected credit losses would be
deducted from the
assets’ amortized cost, which is presented on the balance sheet
as a net amount.
Recognized purchased credit-impaired assets not measured at
fair value with all changes
in fair value recognized in current income. The estimate of
would be presented on the balance sheet as an allowance
reducing the sum of the
assets’ purchase price and the expected credit losses on the
assets at acquisition.
Loan commitments. The estimate of expected credit losses
would be presented on
the balance sheet as a liability.
Disclosure
The purpose of the proposed disclosures is to help fi nancial
statement users to
understand the following:
The portfolio’s underlying credit risk and how management
monitors the port-
folio’s credit quality;
Management’s estimate of expected credit losses; and

Changes in the estimates of expected credit losses that occurred
during the period.
Information about credit quality. The information disclosed
would have to
enable users of fi nancial statements to do both of the
following:
Understand how management manages the credit quality of its
debt instru-
ments; and
Evaluate the quantitative and qualitative risks resulting from its
debt instru-
ments’ credit quality.
An entity would be required to provide quantitative and
qualitative information
by class of fi nancial asset about its credit quality, including the
following:
A description of the of the credit-quality-indicator;
The amortized cost, by credit-quality indicator; and
For each credit-quality indicator, the date or range of dates in
which the infor-
mation was last updated for that credit-quality indicator.
An entity that discloses information about internal risk ratings
would be required
to provide qualitative information on how the internal risk
ratings are related to
the possibility of loss.
The above proposed disclosures requirements would not apply
to short-term
trade receivables related to revenue transactions under ASC
605.

Allowance for expected credit losses. The purpose of the
proposed disclosures
would be to enable fi nancial statement users to understand:
How management developed its allowance for expected credit
losses;
The information management used to develop its current
credit losses; and
Economic circumstances causing changes in the allowance for
expected credit
losses, which results in a related credit loss expense or reversal
recognized during
the period.
To meet the objectives discussed above, the following
information about an enti-
ty’s accounting policies and method used to estimate the
allowance for expected
credit losses would be disclosed by portfolio segment:
How expected estimates are developed;
Factors infl uencing management’s current estimate of expected
credit losses,
including past events, current conditions, and reasonable and
supportable fore-
casts about the future;
Risk characteristics relevant to each portfolio segment;
Changes in the factors infl uencing management’s current
credit losses and reasons for those changes (e.g., change in

portfolio composi-
tion, change in volume of purchased or originated assets, or
signifi cant events
or conditions affecting the current estimate that were not
considered during the
previous period);
Changes, if any, to the entity’s accounting policies or methods
from the prior
period and the entity’s rationale for the change, if applicable;
Signifi cant changes, if any, in techniques used to make
estimates and reasons for
the changes, if applicable; and
Reasons for signifi cant changes in the amount of writeoffs, if
applicable.
To help fi nancial statement users to understand activity in the
allowance for
expected credit losses for each period by portfolio segment, an
entity would be
required to separately provide the following quantitative
disclosures for fi nancial
assets classifi ed at amortized cost and fi nancial assets classifi
ed at fair value with
qualifying changes in fair value recognized in other
comprehensive income:
Beginning balance in the allowance for expected credit losses;
Provision for credit losses in the current period;
Writeoffs charged against the allowance;
Recoveries of amounts previously written off; and
Ending balance in the allowance for expected credit losses.
An entity that used the practical expedient discussed above and
did not measure
expected credit losses for certain fi nancial assets classifi ed at
fair value with qualifying

changes in fair value recognized in other comprehensive income
would be required to
disclose the amortized cost balance of those assets at the
portfolio segment level. The
amortized cost for purchased credit-impaired assets would be
the sum of the assets’
purchase price plus the expected credit losses on the assets at
acquisition.
Roll forward for certain debt instruments. A roll forward of an
entity’s portfolio
of debt instruments classifi ed at amortized cost would be
required from the begin-
ning of the period to the end of the period, separated at the
portfolio segment level.
It would include the following information:
Beginning amortized cost;
Originations;
Purchases;
Sales;
Repayments;
Writeoffs; and
Ending amortized cost.
A roll forward of a portfolio of debt instruments classifi ed at
fair value with
qualifying changes in fair value recognized in other
comprehensive income would
be required from the beginning of the period to the end of the
period separated at

the portfolio segment level. Disclosure of the information listed
above would be
required, at a minimum.
The above disclosures would not apply to the following:
Receivables as a result of revenue transactions under the scope
of ASC 605;
Reinsurance receivables as a result of insurance transactions
under the scope of
ASC 944; and
Loan commitments not measured at fair value with changes in
fair value recog-
nized at net income.
Reconciliation between fair value and amortized cost for debt
instruments
classifi ed at fair value with qualifying changes in fair value
recognized in other
comprehensive income. If an entity has not already presented all
of the following
items on the balance sheet, it would be required to disclose a
reconciliation of the
difference between the fair value and amortized cost for assets
measured at fair value
with qualifying changes in fair value recognized in other
comprehensive income:
Amortized cost;
Allowance for expected credit losses;
Accumulated amount needed to reconcile amortized cost less the
allowance for
expected credit losses to fair value; and
Fair value.
Past due status. To help users understand the extent that an

entity’s fi nancial
assets are past due, an entity would be required to provide an
aging analysis of the
amortized cost for debt instruments that are past due as of the
reporting date, sepa-
rated at the portfolio segment level. An entity would also be
required to disclose
when a debt instrument is considered to be past due.
Nonaccrual items. To help users to understand the credit risk
and interest income
recognized on fi nancial assets on nonaccrual status, an entity
would be required to
disclose the following information separated at the portfolio
segment level:
Amortized cost of debt instruments on nonaccrual level as of
the beginning of
the reporting period and the end of the reporting period;
Amount of interest income recognized during the period on
nonaccrual instruments;
8 © 2013 CCH. All Rights Reserved. MGUS
A C C O U N T I N G R E S E A R C H M A N A G E R ®
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Amortized cost of debt instruments that are 90 days or more
past due, but not on
nonaccrual status as of the reporting date; and
Amortized cost of debt instruments on nonaccrual status for
which there are no
related expected credit losses at the reporting date because the
debt is a fully
collateralized fi nancial asset.
Purchased credit-impaired fi nancial assets. An entity that has
purchased
credit-impaired fi nancial assets during a reporting period
would be required to pro-
vide a reconciliation of the difference between the assets’
purchase price and their

par value, including:
Purchase price;
Discount because of expected credit losses based on the
acquirer’s evaluation;
Discount or premium because of other factors; and
Par value.
Collateralized fi nancial assets. An entity would be required to
describe the type
of collateral by class of fi nancial assets. In addition, a
qualitative description would
be required of the extent to which an entity’s fi nancial assets
are secured by collat-
eral. A qualitative explanation by class of fi nancial asset would
be required regard-
ing signifi cant changes in the extent to which collateral secures
an entity’s fi nancial
assets, which may occur because of general deterioration or
some other reason.
About the Author
Judith Weiss, CPA, has been attending EITF meetings regularly
since 1991.
She was a technical manager in the AICPA Accounting
Standards Division
and a senior manager in the national offi ces of Deloitte &
Touche LLP and
Grant Thornton LLP. Ms. Weiss is also one of the authors of the
GAAP Guide.
Copyright of GAAP Update Service is the property of CCH
Incorporated and its content may not be copied or

emailed to multiple sites or posted to a listserv without the
copyright holder's express written permission.
However, users may print, download, or email articles for
individual use.

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GAAPVolume 13, Issue 4 February 28, 2013UPDATE SERVICE.docx