The Institute of Chartered Accountants in England and Wales (ICAEW) has taken the unusual step of expressing serious concerns over the US Financial Accounting Standards Board’s (FASB) proposed new accounting standard for expecting credit losses in a letter to the standard setter.
Explaining its decision to respond to a US consultation, the UK based accountancy body said it "considered the FASB’s proposals when preparing comments to the International Accounting Standards Board’s (IASB) parallel standard proposal and concluded it was important to flag its concerns."
In its letter, the ICAEW described FASB’s conceptual basis of recognising all expected credit losses upfront as "highly questionable," saying it does not meet the objectives of financial reporting and suggesting it could lead to serious unintended consequences.
Head of ICAEW’s financial reporting faculty, Nigel Sleigh-Johnson said it was questionable "whether the FASB’s suggestion that all expected credit losses be recognised on the date a loan agreement is signed meets the objective of financial reporting."Such an approach does not in our view reflect commercial lending practise and could result in information that is of questionable use to users of financial statements."
The ICAEW suggested looking at the IASB’s proposals for inspiration, with Sleigh-Johnson adding "Overall, the IASB’s impairment proposal, whilst not perfect, meets these criteria and offers a solution that is both operationally viable and a potential improvement to existing loan loss recognition practice."