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Clearing Confusion Around Accounting Principles Changeups

Companies must make sure their accountants are in compliance with the ever-changing standards, and should also make sure their financial reporting software is updated. As part of the ongoing efforts from the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), there have been a few recent updates to various accounting principles.

Credit impairment model
While FASB and IASB have been working on a universal set of accounting standards for a long time, the FASB recently broke rank and announced it will issue a separate exposure draft for companies that disclose credit impairment, according to AccountingWeb. The source explained that unlike the IASB so-called "three-bucket" credit impairment approach, the FASB's "Current Expected Credit Loss Model" will have a single approach for instances when companies are expecting a shortfall in contracted cash flows and anticipate credit losses.

In an announcement of the model issued in August, the FASB noted that these expected credit losses would be a reflection of management's "current estimate of the contractual cash flows that the entity does not expect to collect." If this credit model is passed, the improvement or deterioration of credit would be reflected in the income statement, which would also include any changes to the reporting entity's asset credit risks and/or condition changes.

"In summary, the CECL Model retains several key expected loss concepts that have been jointly deliberated and agreed upon with the IASB," the board said in August. "The FASB believes that the CECL Model will improve the understandability and simplify the implementation of the expected credit loss principle."

Pension standard
The accounting standards groups have been trying to offer accounting help by regularly issuing updates about the convergence talks. This month, the Governmental Accounting Standards Board issued a fact sheet that offered answers to some common questions on public employee pensions. The information may be useful for those in the accounting community who serve state or local governments. In response to the question "Do the new GASB Statements establish requirements for how governments should fund their pensions?" the board noted that the principles do not. The new statements strive to draw a clear line between how governments account for pension funding and how they issue their financial reports on the subject.

Are some rules hurting banks?
Some banks and other corporations in the UK financial sector may be struggling with the current set of policies governing their industry, The Guardian reports. According to the source, rules about how banks value their bad debts has stopped them from forecasting future losses. Currently, they can only report upon the losses they have already incurred, not even those they know are coming in the future.

Stateside, the Dodd-Frank Wall Street Reform and Consumer Protection Act is deterring some non-U.S. banks from registering with American regulatory bodies, as reported by The Wall Street Journal. Some foreign financial institutions have even stopped trading complex derivatives with U.S. banks, the newspaper noted.