Earlier this month FASB issued an exposure draft titled, Financial Instruments—Credit Losses (Topic 326): Proposed Accounting Standards Update, Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities. As part of the private company implementation of CECL, many preparers (and auditors) noted that developing reasonable and supportable forecasts was time consuming to document, despite CECL generally not having a material effect on the allowance for short-term assets. For example, assets like accounts receivable (one of the largest assets impacted by CECL for private entities) are typically collected before the date the financial statements were available to be issued.
The proposal would provide entities in scope with a practical expedient that assumes that current conditions as of the balance sheet date persist throughout the forecast period (avoiding the future looking requirements) and an accounting policy election to to consider collection activity after the balance sheet date when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606.
The ASU would apply to private companies and not-for-profit entities (excluding NFPS that are conduit bond obligors). The FASB has a series of questions they would love private companies and those serving private companies to help understand whether the proposal will help and reduce cost and complexity. Comments are due January 17, 2025
