KPMG IFRG Limited recently commented on the proposed FASB ASU, Financial Instruments-Credit Losses, and the IASB ED, Financial Instruments: Expected Credit Losses, which would change the way entities recognize credit impairment on financial assets that are not measured at fair value with changes in fair value recognized in net income. The FASB and IASB proposals would not achieve convergence, and KPMG believes that the Boards should work together to achieve a high-quality converged solution for recognizing impairment of financial assets.
KPMG generally supports the proposal to (1) establish a single impairment model for all financial assets and (2) reduce delays in recognizing credit losses through an expected credit loss model. However, KPMG believes that it is inappropriate to immediately recognize in profit and loss lifetime expected credit losses on financial assets at the time of their origination or acquisition. Overall, KPMG supports the IASB’s dual measurement objective of either 12-month expected credit losses or lifetime expected credit losses for assets that have a significant deterioration in credit quality since initial recognition.