FASB seeks comments on proposal on measurement of credit losses for accounts receivable and contract assets for private companies and certain not-for-profit entities

FASB has published a proposed Accounting Standards Update (ASU) on the measurement of credit losses for accounts receivable and contract assets for private companies and certain not-for-profit entities.  

FASB and the Private Company Council have undertaken this project to address challenges with applying the guidance in Topic 326, Financial Instruments—Credit Losses (CECL), to current accounts receivable and current contract assets arising from revenue transactions. Private companies and not-for-profit entities have indicated that estimating expected credit losses for these balances can be costly and complex. Specifically, stakeholders noted that identifying, analyzing, and documenting macroeconomic data as part of developing reasonable and supportable forecasts is challenging, and generally does not have a material effect on the allowance for shorter term receivables. 

Stakeholders also observed that estimating expected credit losses for current accounts receivable and current contract assets requires significant effort and documentation even for assets that are collected before the issuance date of the financial statements. The ability to consider collections after the balance sheet date in estimating expected credit losses would significantly reduce complexity for preparers while still providing investors and other financial statement users with decision-useful information. 

To address this feedback, the amendments in the proposed ASU introduce a practical expedient and an accounting policy election for private companies and certain not-for-profit entities related to the application of CECL to current accounts receivable and current contract assets arising from revenue transactions. 

Stakeholders are encouraged to review and provide input on the proposed ASU by Jan. 17, 2025.