ACCOUNTING STANDARDS UPDATE (ASU) 2010-20, DISCLOSURES ABOUT THE CREDIT QUALITY OF FINANCING RECEIVABLES AND THE ALLOWANCE FOR CREDIT LOSSES

By R. Allen Norvell, CPA - Director

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-20, Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to amend the disclosure requirements for receivables to require additional information on credit risk exposures and the adequacy of the allowance for credit losses. The main objective of this update was to provide financial statement users with greater transparency about an entity's allowance for credit losses and the credit quality of its financing receivables (including loans, trade accounts receivable, notes receivable, credit card receivables, and lessor receivables recognized as assets in connection with leveraged leases, direct financing leases, or sales-type leases).

The objective of the amendments in this Update is for an entity to provide disclosures that facilitate financial statement users' evaluation of the following:

1. The nature of credit risk inherent in the entity's portfolio of financing receivables


2. How that risk is analyzed and assessed in arriving at the allowance for credit losses


3. 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.

Existing disclosures are amended to require an entity to provide the following disclosures about its financing receivables on a disaggregated basis:

1. A roll forward schedule of the allowance for credit losses from the beginning of the reporting period to the end of the reporting period on a portfolio segment basis, with the ending balance further disaggregated on the basis of the impairment method


2. For each disaggregated ending balance in item (1) above, the related recorded investment in financing receivables


3. The nonaccrual status of financing receivables by class of financing receivables


4. Impaired financing receivables by class of financing receivables.

The amendments in this Update also require an entity to provide the following additional disclosures about its financing receivables:

1. Credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables


2. The aging of past due financing receivables at the end of the reporting period by class of financing receivables


3. The nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses


4. The nature and extent of financing receivables modified as troubled debt restructurings within the previous 12 months that defaulted during the reporting period by class of financing receivables and their effect on the allowance for credit losses


5. Significant purchases and sales of financing receivables during the reporting period disaggregated by portfolio segment.

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