IMA FRC comment letter response to proposed ASU on measurement of credit losses
January 17, 2025
IMA’s Financial Reporting Committee (FRC or Committee) issued a comment letter to share its views on the Financial Accounting Standards Board’s (FASB or Board) Proposed Accounting Standards Update - Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Non-for-Profit Entities (Proposed Update).
The Committee expressed its support of the practical expedient within the Proposed Update that would modify the requirement in ASC 326 for a reporting entity to consider the impact of “reasonable and supportable forecasts” on historical loss information in determining the allowance for credit losses on accounts receivable and contract assets arising from transactions accounted for under ASC 606 Revenue from Contracts with Customers that are classified as current assets.
However, the Committee noted that it only supports the Proposed Update’s practical expedient option if the Board extends it to all reporting entities. It does not support different recognition and measurement requirements for private companies, particularly when many of the same issues identified by the Board in the Proposed Update also apply to public reporting entities.
The Committee also supports allowing reporting entities to consider subsequent collections of accounts receivable and contract assets in establishing the allowance for credit losses; however it expressed its belief that for many reporting entities, adopting the proposed accounting policy may not have a meaningful impact due to the short passage of time between the balance sheet date and the date the financial statements are available for issuance. The Committee believes that this could potentially result in additional time and effort to adjust historical loss calculations to reflect the reduction of collected receivables from historical loss statistics.