The FASB issued ASU No. 2010–20, Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses in July 2010.
The objective of this ASU is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. It is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. Currently, a high threshold for recognition of credit impairments impedes timely recognition of losses.
Amendments in this Update:
- Apply to all entities, both public and nonpublic. Affect all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value.
- The extent of the effect depends on the relative significance of financing receivables to an entity’s operations and financial position.
This Update requires an entity to provide disclosures that facilitate financial statement users’ evaluation of the following:
- The nature of credit risk inherent in the entity’s portfolio of financing receivables
- How that risk is analyzed and assessed in arriving at the allowance for credit losses
The changes and reasons for those changes in the allowance for credit losses.
To achieve the above objective, an entity should provide disclosures on a disaggregated basis. The amendments in this Update define two levels of disaggregation—portfolio segment and class of financing receivable.
For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Therefore, for calendar year issuers, the year end information will be presented for 2010, but activity for the year will not be presented until 1st quarter 2011.
For nonpublic entities the disclosures are effective for annual reporting periods ending on or after December 15, 2011.
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