The IASB And FASB Impairment Models For Financial Assets Could
Differ If The FASB's Plans To Find An Alternative To The
"Three Bucket" Approach Are Successful.
The IASB And FASB Have Been Deliberating A Three Bucket
Impairment Model For Financial Assets. The FASB Met Recently To
Discuss The Next Steps For The Project, After Announcing Its
Intention To Further Discuss Key Aspects Of The Model. It
Considered The Results Of Outreach Efforts And Constituent
Feedback, And Unanimously Agreed With Concerns From US Constituents
That Aspects Of The Three Bucket Impairment Model Are Complex And
Difficult To Understand. The FASB Will Not, Therefore, Move Forward
With An Exposure Draft On The Three Bucket Impairment Model; It
Will Instead Explore A Revised Approach.
What Are The Key Issues?
Under The Three Bucket Impairment Model, Financial Assets Would
Initially Be Placed In Bucket 1, Where Impairment Losses Would Only
Be Recognized For Those Assets Expected To Experience A Loss Event
In The Next 12 Months.
As Credit Risk Deteriorates, Assets Would Then Move To Bucket 2
Or Bucket 3, Where Impairment Losses Would Be Measured Based On
Lifetime Expected Losses, Irrespective Of When The Loss Event Is
Expected To Occur. Key Aspects Of The Three Bucket Impairment Model
Include Determining Whether A Loss Event Is Expected To Occur In
The Next 12 Months, And The Level Of Credit Deterioration That
Requires A Transfer Of Assets Between Buckets. Feedback From US
Constituents Indicated Defining These Concepts May Be Difficult And
Raised Concerns Over The Understandability, Operability And
Auditability Of The Model. The FASB Considered Whether
Implementation Guidance Could Adequately Clarify The Objectives Of
The Model. It Concluded That, Even With Improved Definitions For
The Key Terms, There Was Still Likely To Be Concern Over Whether
The Model Results In Impairment Losses That Faithfully Represent
The Credit Risk Of The Portfolio. The FASB, Therefore, Directed Its
Staff To Explore A Model That Incorporates The Concept Of Expected
Losses, But Applies That Concept To All Financial Assets Held And
Uses A Single Measurement Approach.
The FASB's Decision To Explore A Revised Approach Could
Result In An Impairment Model That Differs From The IASB's
Model. During That Discussion, Certain IASB Members Indicated That
They Have Heard Much Less Concern About The Three Bucket Impairment
Model; It, Therefore, Plans To Move Forward With That Approach.
What Is Next?
The FASB Directed Its Staff To Develop The New Model And Is
Hopeful That The Staff Will Be Able To Leverage The Discussions
Held To Date In That Process. Discussions Of The New Model Are
Expected To Take Place Over The Next Several Weeks, With The
FASB's Sharing Its Findings With The IASB In September.
The IASB Has Not Publicly Discussed This FASB Decision And
Whether It Will Affect Its Timetable, Which Is To Issue An IASB
Exposure Draft In Q4 2012.
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