FASB Issues Update on Financing Receivables Credit Quality Disclosures

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update No. 2010-20, ‘Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses’. The update will improve transparency in financial reporting by public and non-public companies that hold financing receivables, which include loans, lease receivables, and other long-term receivables.

The update requires companies to provide more information in their disclosures about the credit quality of their financing receivables and the credit reserves held against them.

“The global financial crisis highlighted the need for additional information about a company’s financial instruments, including loans and other financing receivables,” said FASB chairman Robert Herz. “This update provides greater transparency for investors and other users of financial statements by requiring more information from companies about credit risk exposures for financing receivables and the related credit reserves.”

The additional disclosures required for financing receivables include:

  • Aging of past due receivables.
  • Credit quality indicators.
  • Modifications of financing receivables.

Under the update, a company will need to disaggregate new and existing disclosures based on how it develops its allowance for credit losses and how it manages credit exposures. Short-term accounts receivables, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from the update.

For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after 15 December 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after 15 December 2010. For non-public companies, the amendments are effective for periods ending on or after 15 December 2011.


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