Will IASB And FASB Impairment Models Be Converged?


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...

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