TY - JOUR

T1 - Expected-loss-based accounting for impairment of financial instruments

T2 - the FASB and IASB proposals 2009-2016

AU - Hashim, Noor Abdelgadir Ahmed

AU - O'Hanlon, John Francis

AU - Li, Weijia

N1 - This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting in Europe on 02/08/2016, available online: http://www.tandfonline.com/doi/full/10.1080/17449480.2016.1210179

PY - 2016

Y1 - 2016

N2 - The financial and banking crisis of the late 2000s prompted claims that the incurred-loss method for the recognition of credit-losses had caused undesirable delay in the recognition of credit-loss impairment. In the wake of the crisis, the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) worked towards the development of expected-loss-based methods of accounting for credit-loss impairment. Their work included an ultimately unsuccessful attempt to develop a converged FASB/IASB standard on credit-loss impairment. The FASB and IASB eventually developed their own separate expected-loss models to be included, respectively, in a 2016 FASB standard and in the IASB's 2014 final version of IFRS 9 Financial Instruments. The failure to achieve convergence on an issue of such high profile and materiality has generated some controversy, and it is claimed that it will impose significant costs on the preparers and users of the financial statements of banks. This paper examines the various sets of expected-loss-based proposals issued separately or jointly since 2009 by the FASB and the IASB. It describes and compares key features of the different approaches eventually developed by the two standard setters, referring to issues that arose in arriving at practically workable solutions and to issues that may have impeded FASB/IASB convergence. It also provides information indicative of the possible effect of differences between the two approaches.

AB - The financial and banking crisis of the late 2000s prompted claims that the incurred-loss method for the recognition of credit-losses had caused undesirable delay in the recognition of credit-loss impairment. In the wake of the crisis, the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) worked towards the development of expected-loss-based methods of accounting for credit-loss impairment. Their work included an ultimately unsuccessful attempt to develop a converged FASB/IASB standard on credit-loss impairment. The FASB and IASB eventually developed their own separate expected-loss models to be included, respectively, in a 2016 FASB standard and in the IASB's 2014 final version of IFRS 9 Financial Instruments. The failure to achieve convergence on an issue of such high profile and materiality has generated some controversy, and it is claimed that it will impose significant costs on the preparers and users of the financial statements of banks. This paper examines the various sets of expected-loss-based proposals issued separately or jointly since 2009 by the FASB and the IASB. It describes and compares key features of the different approaches eventually developed by the two standard setters, referring to issues that arose in arriving at practically workable solutions and to issues that may have impeded FASB/IASB convergence. It also provides information indicative of the possible effect of differences between the two approaches.

KW - financial instruments

KW - impairment

KW - expected-loss

KW - loan losses

KW - IFRS 9

U2 - 10.1080/17449480.2016.1210179

DO - 10.1080/17449480.2016.1210179

M3 - Journal article

VL - 13

SP - 229

EP - 267

JO - Accounting in Europe

JF - Accounting in Europe

SN - 1744-9480

IS - 2

ER -