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The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that provides two narrow-scope improvements to its credit losses standard (ASU 2016-13, Measurement of Credit Losses on Financial Instruments). The new guidance, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, extends the implementation date for nonpublic business entities and clarifies that operating lease receivables are outside the scope of Accounting Standards Codification Topic 326.

ASU 2016-13 introduced the “current expected credit losses” (CECL) model, which requires organizations to estimate credit losses immediately upon exposure. The guidance applies to financial assets measured at amortized cost including financing receivables (loans) and trade receivables. Most independent institutions already reflect an estimate of credit losses in their allowances for doubtful accounts at the time loans and receivables are recorded. As a result, 2016-13 is not expected to have a significant impact on financial position.

Constituents had raised questions to FASB about whether operating lease receivables—which appear to meet the definition of a financing receivable measured at amortized cost—are within the scope of the guidance on credit losses. ASU 2018-19 clarifies that operating lease receivables are outside the credit losses guidance and should instead be accounted for under the leasing guidance in Topic 842.

The original standard was effective for nonpublic business entities, which includes not-for-profit entities, for annual periods beginning after December 15, 2020, and interim periods beginning after December 15, 2021. ASU 2018-19 extends the effective date for application to annual periods by one year to align the timing with that for interim periods. As a result, independent institutions will be required to apply the guidance for annual and interim periods beginning in FY23.

For more information, see ASU 2018-19 on FASB’s website.


Sue Menditto

Director, Accounting Policy


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