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New US Credit Loss Impairment Model Diverges From International Standards

A new credit loss impairment model being developed by the Financial Accounting

In an effort to further the development of U.S. accounting standards alongside international standards, the Financial Accounting Standards Board is working on a new model for expected credit loss impairment, according to the Journal of Accountancy.

The FASB has been working closely with the International Accounting Standards Board in developing the impairment model, the source reported. But rather than adopt the so-called "three bucket" model favored by the IASB, the U.S. organization is developing something it calls the "current expected credit loss" model.

The three bucket approach differentiates between assets whose credit losses are calculated using a 12-month measurement objective and those that require a lifetime measurement objective. The FASB approach, according to the JoA, contains a single measurement objective: current estimates of expected credit losses.

Citing an FASB summary, the JoA said that, "under the CECL model, an entity at each reporting date would reflect a credit impairment allowance for its current estimate of the expected credit losses on financial assets held. The estimate of expected credit losses is neither a 'worst case' nor a 'best case' scenario, but it reflects management's estimate of the contractual cash flows that the entity does not expect to collect."

The FASB is expected to meet September 7 to further discuss the new model.

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