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FASB to Create Advisory Panel for Adoption of Asset Impairment Standard

Expected to issue its standard for recording loan losses next year, the Financial Accounting Standards Board (“FASB”) is creating an advisory panel to assist companies in the implementation of Proposed Accounting Standards Update No. 2012-260, Financial Instruments—Credit Losses (Subtopic 825-15). Responding to investors’ complaints about banks using the incurred-loss model for reporting losses during the global financial crisis, the standard will help disclose bad loans and securities, as well as adopt a current-expected-credit-loss (CECL) model. The new model will require banks to evaluate forthcoming losses on loans going bad and establish reserves based on such estimates.

Commenting on the advisory panel at the American Institute of Certified Public Accountants’ National Conference on Banks and Savings Institutions earlier last week, FASB chairman Russell Golden said the group will be similar to the Transition Resource Group created for assisting with the adoption of recently issued revenue recognition standards. With the advisory panel to include companies, auditors, investors and regulators, FASB wants to make sure banks understand how to adopt the CECL model. In addition, Golden said investors consider the CECL model as an enhancement over the existing accounting model, and that several financial analysts had already created similar models for calculating loan losses. Golden also noted regulators backed the changes, and thinks auditors and banks will eventually support them.

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