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FASB issues targeted transition relief for the credit losses standard

Defining Issues | May 2019

ASU 2019-05 provides more flexibility in applying the fair value option on adoption of the new standard.

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FASB has issued ASU 2019-05, which provides entities with more flexibility in applying the fair value option on adoption of the credit impairment standard.

Applicability

  • Companies that hold financial instruments in the scope of the credit losses standard

Relevant dates

 Credit losses standard adopted?
Effective date:YesNo
Annual periods and interim periods – Fiscal years beginning afterDecember 15, 2019The effective dates and transition requirements are the same as the credit losses standard
Early adopted allowed?Yes, in any interim period if the company has adopted the credit losses standardThe effective dates and transition requirements are the same as the credit losses standard

Key Impacts:

  • On adoption, an entity is allowed to irrevocably elect the fair value option on an instrument-by-instrument basis
  • This alternative is available for all instruments in the scope of Subtopic 326-20 except for existing held-to-maturity debt securities
  • If an entity elects the fair value option, the difference between the instrument’s fair value and carrying amount is recognized as a cumulative-effect adjustment

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