Final FASB Disclosure Guidance Issued
Last July, the FASB issued new disclosure guidance significantly expanding existing financial statement reporting requirements for both public and private companies in the U.S.
The biggest change required by ASU 2010-20 is the need for companies to provide information for both the finance receivables (loans) and the related allowance for credit losses at disaggregated levels. The level of disaggregation is defined by one of two new terms introduced by ASU 2010-20:
- A portfolio segment is defined as the level at which an entity determines its allowance for credit losses.
- A class of financing receivable is defined as a group of finance receivables determined on the basis of their initial measurable attribute, risk characteristics and an entity’s method for monitoring and assessing credit risk.
Industry experts say that this new disclosure guidance reflects the fact that the FASB is responding to a demand for greater transparency into borrowers’ exposure to credit losses from lending arrangements. The goal is to provide readers of financial statements with information that will help them understand the nature of credit risk in a company’s financing receivables, as well as how that risk is analyzed in determining the related allowance for credit losses and changes to the allowance during the reporting period. For banks, the requirements require an understanding of new stratifications that they may not be familiar with. Private banks should start looking at the requirements of ASU 2010-20 to get a good understanding of the requirements and to determine whether current systems capture the level of information needed or if systems will need to be modified. Private banks will have the benefit of being able to review the disclosures of public banks, so there are volumes of examples of how others have applied the new standard. The key is not waiting until the last minute to determine how the requirements of ASU 2010-20 will be met.
 If you have any questions,
please give
Tim Messman
a call at
404-420-5797 or
contact him at tmessman@pkm.com.
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