FASB proposes ASU on credit losses, contract assets

The Financial Accounting Standards Board today published a proposed Accounting Standards Update on the measurement of credit losses for accounts receivable and contract assets for private companies and certain not-for-profit entities.

The amendments in the proposed ASU introduce a practical expedient and an accounting policy election for private companies and certain not-for-profits. The FASB seeks public comment by January 17, 2025. Information on how to submit feedback can be found here.

With the proposed ASU, the FASB and the Private Company Council aim to address application challenges of the guidance in Topic 326, Financial Instruments–Credit Losses, to current accounts receivable and current contract assets arising from revenue transactions. 

Private companies and not-for-profit entities indicated that estimating expected credit losses for these balances can be costly and complex. Specifically, they said that identifying, analyzing and documenting macroeconomic data as part of developing forecasts is challenging and generally does not have a material effect on the allowance for shorter term receivables. 

Stakeholders also noted that estimating expected credit losses for current accounts receivable and current contract assets requires significant effort and documentation, including for assets that are collected before the financial statements’ issuance date. Considering collections after the balance sheet date in estimating expected credit losses would make it easier for preparers while still providing investors and financial statement users with useful information.