Receivables (Topic 310)

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Summary

Why Is the FASB Issuing This Accounting Standards Update (Update)?

The main objective in developing this Update is to provide financial statement users with greater transparency about an entity's allowance for credit losses and the credit quality of its financing receivables. In the aftermath of the global economic crisis, effective financial reporting has become the subject of worldwide attention, with a focus on the urgent need for improved accounting standards in a number of areas, including financial instruments. This Update is intended to provide additional information to assist financial statement users in assessing an entity's credit risk exposures and evaluating the adequacy of its allowance for credit losses. Currently, a high threshold for recognition of credit impairments impedes timely recognition of losses. The FASB recently issued an Exposure Draft of a proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities: Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815), that would remove that threshold.

Who Is Affected by the Amendments in This Update?

The amendments in this Update apply to all entities, both public and nonpublic. The amendments in this Update affect all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value. The extent of the effect depends on the relative significance of financing receivables to an entity's operations and financial position. For example, traditional banking-type institutions that currently measure a large number of financing receivables at amortized cost will be affected to a greater extent than brokers and dealers in securities and investment companies that currently measure most financing receivables at fair value. The effect likely will be less significant for many commercial and industrial entities whose financing receivables are primarily short-term trade accounts receivable.

What Are the Main Provisions?

The objective of the amendments in this Update is for an entity to provide disclosures that facilitate financial statement users' evaluation of the following:

1. The nature of credit risk inherent in the entity's portfolio of financing receivables
2. How that risk is analyzed and assessed in arriving at the allowance for credit losses
3. The changes and reasons for those changes in the allowance for credit losses.

To achieve the above objective, an entity should provide disclosures on a disaggregated basis. The amendments in this Update define two levels of disaggregation—portfolio segment and class of financing receivable. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. Classes of financing receivables generally are a disaggregation of portfolio segment. The amendments in this Update provide additional implementation guidance to determine the appropriate level of disaggregation of information.

Existing disclosures are amended to require an entity to provide the following disclosures about its financing receivables on a disaggregated basis:

1. A rollforward schedule of the allowance for credit losses from the beginning of the reporting period to the end of the reporting period on a portfolio segment basis, with the ending balance further disaggregated on the basis of the impairment method
2. For each disaggregated ending balance in item (1) above, the related recorded investment in financing receivables
3. The nonaccrual status of financing receivables by class of financing receivables
4. Impaired financing receivables by class of financing receivables.

The amendments in this Update require an entity to provide the following additional disclosures about its financing receivables:

1. Credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables
2. The aging of past due financing receivables at the end of the reporting period by class of financing receivables
3. The nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses
4. The nature and extent of financing receivables modified as troubled debt restructurings within the previous 12 months that defaulted during the reporting period by class of financing receivables and their effect on the allowance for credit losses
5. Significant purchases and sales of financing receivables during the reporting period disaggregated by portfolio segment.

How Do the Main Provisions Differ from Current U.S. Generally Accepted Accounting Principles (GAAP) and Why Are They an Improvement?

The amendments in this Update enhance disclosures about the credit quality of financing receivables and the allowance for credit losses. As noted above, existing disclosure guidance is amended to require an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. In addition, the amendments in this Update require an entity to disclose credit quality indicators, past due information, and modifications of its financing receivables. These improvements will help financial statement users assess an entity's credit risk exposures and its allowance for credit losses.

When Will the Amendments Be Effective?

For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.

For nonpublic entities, the disclosures are effective for annual reporting periods ending on or after December 15, 2011.

The amendments in this Update encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption.

How Do the Provisions Compare with International Financial Reporting Standards (IFRS)?

The disclosures required by the amendments in this Update are similar, but not identical, to those required by IFRS 7, Financial Instruments: Disclosures. However, the scope of IFRS 7 includes all financial instruments, not just financing receivables and the allowance for credit losses. The FASB decided to limit the scope of this Update because it does not want to delay the improved transparency in an entity's financial statements about the allowance for credit losses and the credit quality of financing receivables.

The FASB and the International Accounting Standards Board (IASB) currently have a joint project on accounting for financial instruments, including disclosures.

Amendments to the FASB Accounting Standards Codification™

Introduction

1. The Accounting Standards Codification is amended as described in paragraphs 2–34. In some cases, not only are the amended paragraphs shown but also the preceding and following paragraphs are shown to put the change in context. Terms from the Master Glossary are in bold type. Added text is underlined, and deleted text is

Amendments to Master Glossary

2. Add the following new Master Glossary terms to Subtopic 310-10, with a link to transition paragraph 310-10-65-2, as follows. Also add the new Master Glossary term Financing Receivable to Subtopics 310-40, 840-30, and 270-10.

1. Initial measurement attribute (for example, amortized cost or purchased credit impaired)
2. Risk characteristics of the financing receivable
3. An entity's method for monitoring and assessing credit risk.

See paragraphs 310-10-55-13 through 55-15 for more information on the definition of financing receivable, including a list of items that are excluded from the definition (for example, debt securities).

The level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. See paragraphs 310-10-55-21 through 55-22.

Amendments to Subtopic 310-10

3. Even though many of the paragraphs in Subtopic 310-10 are not amended, the Subtopic is reproduced here to provide a better context to the amendments.

1. Overall
2. Nonrefundable Fees and Other Costs
3. Loans and Debt Securities Acquired with Deteriorated Credit Quality
4. Troubled Debt Restructurings by Creditors.

The Overall Subtopic establishes general guidance for receivables. The guidance is presented in the following two Subsections:

1. General
2. Acquisition, Development, and Construction Arrangements.

The General Subsections provide guidance on a variety of accounting issues related to receivables. The following paragraphs provide background information on types of receivables addressed in the General Subsections.

310-10-05-4 Receivables may arise from credit sales, loans, or other transactions. Receivables may be in the form of loans, notes, and other types of financial instruments and may be originated by an entity or purchased from another entity.

310-10-05-5 Entities sometimes enter into forward standby commitments to purchase loans at a stated price in return for a standby commitment fee. In such an arrangement, settlement of the standby commitment is at the option of the seller of the loans and would result in delivery to the entity only if the contract price equals or exceeds the market price of the underlying loan or security on the settlement date. A standby commitment differs from a mandatory commitment in that the entity assumes all the market risks of ownership but shares in none of the rewards. A standby commitment is, in substance, a written put option that will be exercised only if the value of the loans is less than or equal to the strike price.

310-10-05-6 Factoring arrangements are a means of discounting accounts receivable on a nonrecourse, notification basis. Accounts receivable are sold outright, usually to a transferee (the factor) that assumes the full risk of collection, without recourse to the transferor in the event of a loss. Debtors are directed to send payments to the transferee.

310-10-05-7 Rebates represent refunds of portions of the precomputed finance charges on installment loans or trade receivables, if applicable, that occur when payments are made ahead of schedule. Rebate calculations generally are governed by state laws and may differ from unamortized finance charges on installment loans or trade receivables because many states require rebate calculations to be based on the Rule of 78s or other methods instead of the interest method.

310-10-15-2 The guidance in the General Subsections applies to a variety of instruments and transactions, including the following:

1. Trade accounts receivable
2. Loans
3. Loan syndications
4. Factoring arrangements
5. Standby letters of

310-10-50-5A The guidance in paragraphs 310-10-50-6 through 50-8 does not apply to loans acquired with deteriorated credit quality (accounted for under Subtopic 310-30).

310-10-50-5B The guidance in paragraphs 310-10-50-6 through 50-7A shall be provided by class of financing receivable except for the following financing receivables:

c. Trade accounts receivable, except for credit card receivables, that have both of the following characteristics:

11. Amend paragraphs 310-10-50-6 through 50-7, with a link to transition paragraph 310-10-65-2, as follows:

summary of significant accounting policies for financing receivables shall include all of the following:

1. The policy for placing financing

following disclosures related to nonaccrual and past due financing receivables as of each balance sheet date

1. The recorded investment in

12. Add paragraphs 310-10-50-7A through 50-7B, with a link to transition paragraph 310-10-65-2, as follows:

310-10-50-7A An entity shall provide an analysis of the age of the recorded investment in financing receivables at the end of the reporting period that are past due, as determined by the entity's policy.

310-10-50-7B The guidance in paragraph 310-10-50-7A does not apply to the following financing receivables:

c. Except for credit card receivables, trade accounts receivable that have both of the following characteristics:

310-10-50-8 For trade receivables that do not accrue interest until a specified period has elapsed, nonaccrual status would be the point when accrual is suspended after the receivable becomes past due.

13. Amend paragraph 310-10-50-9 through 50-10 and its related heading, with a link to transition paragraph 310-10-65-2, as follows:

Subtopic 450-20, an entity shall disclose a description of the accounting policies and methodology the entity used to estimate its

. Such a description shall identify the factors that influenced management's judgment (for example, historical losses and existing economic conditions), and a

credit exposures on off-balance-sheet loan commitments, standby letters of credit, financial guarantees, and other similar instruments, except for instruments within the scope of

14. Add paragraphs 310-10-50-11A through 50-11C and amend their related heading, with a link to transition paragraph 310-10-65-2, as follows:

310-10-50-11 Paragraph 310-10-45-3 states that foreclosed and repossessed assets included in other assets on the balance sheet shall have separate disclosures in the notes to financial statements.

310-10-50-11A The guidance in paragraph 310-10-50-11B does not apply to the following financing receivables:

1. Financing receivables listed in paragraph 310-10-50-7B
2. Lessor's net investments in leveraged leases.

a. A description of the entity's accounting policies and methodology used to estimate the allowance for credit losses, including all of the following:

1. A description of the factors that influenced management's judgment, including both of the following:

3. Identification of any changes to the entity's accounting policies or methodology from the prior period and the entity's rationale for the change.

f. The amount of any significant sales of financing receivables or reclassifications of financing receivables to held for sale during each reporting period

g. The balance in the allowance for credit losses at the end of each period disaggregated on the basis of the entity's impairment method

h. The recorded investment in financing receivables at the end of each period related to each balance in the allowance for credit losses, disaggregated on the basis of the entity's impairment methodology in the same manner as the disclosure in item (g).

310-10-50-11C To disaggregate the information required by items (g) and (h) in the preceding paragraph on the basis of the impairment methodology, an entity shall separately disclose the following amounts:

1. mounts collectively evaluated for impairment (determined under Subtopic 450-20)
2. Amounts individually evaluated for impairment (determined under Section 310-10-35)
3. Amounts related to loans acquired with deteriorated credit quality (determined under Subtopic 310-30).

15. Supersede paragraphs 310-10-50-12 through 50-13, with a link to transition paragraph 310-10-65-2, as follows:

310-10-50-14 Asset valuation allowances required by paragraph 310-10-45-4 shall have an appropriate disclosure.

16. Add paragraph 310-10-50-14A and amend paragraph 310-10-50-15, with a link to transition paragraph 310-10-65-2, as follows:

310-10-50-14A For each class of financing receivable, an entity shall disclose both of the following for loans that meet the definition of an impaired loan in paragraphs 310-10-35-16 through 35-17 (individually evaluated for impairment):

1. The accounting for impaired loans
2. The amount of impaired loans.

all of the following information about loans that meet the definition of an impaired loan in paragraphs 310-10-35-16 through 35-17 by class of financing receivable:

the total recorded investment in the impaired loans at the end of each period and both of the following:

i. The amount of that recorded investment for which there is a related allowance for credit losses determined in accordance with Section 310-10-35 and the amount of that allowance

ii. The amount of that recorded investment for which there is no related allowance for credit losses determined in accordance with Section 310-10-35.

related amount of interest income recognized during the time within that period that the loans were impaired

The amount of interest income recognized using a cash-basis method of accounting during the time within that period that the loans were impaired, if practicable.

d. The entity's policy for determining which loans the entity assesses for impairment under Section 310-10-35

Those disclosures shall be provided for impaired loans that have been charged off partially. Those disclosures cannot be provided for loans that have been charged off fully because both the recorded investment and the allowance for credit losses will equal zero.

calculate the average recorded investment in the impaired loans during the reporting period. A creditor shall

develop an appropriate method for that calculation. Averages based on month-end balances may be considered an appropriate method.

310-10-50-18 Information about loans meeting the scope of Subtopic 310-30 shall be included in the disclosures required by paragraph 310-10-50-15(a) through (b) if the condition in paragraphs 320-10-35-18 through 35-34 or 450-20-25-2(a), as discussed in paragraphs 310-30-35-8(a) and 310-30-35-10(a), is met.

310-10-50-19 Paragraphs 310-10-45-5 through 45-6 explains that a creditor that measures impairment based on the present value of expected future cash flows is permitted to report the entire change in present value as bad-debt expense but may also report the change in present value attributable to the passage of time as interest income. Creditors that choose the latter alternative shall disclose the amount of interest income that represents the change in present value attributable to the passage of time.

18. Amend paragraphs 310-10-50-20 through 50-21, with a link to transition paragraph 310-10-65-2, as follows:

310-10-50-20 The following table summarizes the scope of the disclosure requirements in paragraph 310-10-50-15.

310-10-50-21 Paragraph 450-20-50-3 provides disclosure guidance for circumstances in which no accrual is made for a loss contingency because one or both of the conditions in paragraph 450-20-25-2 (probable and reasonably estimated) are not met, or if an exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 450-20-25-2. The disclosures required by paragraphs 450-20-50-3 through 50-6 do not apply to loss contingencies arising from an entity's estimation of its allowance for credit losses.

19. Supersede paragraphs 310-10-50-22 through 50-23, with a link to transition paragraph 310-10-65-2, as follows:

As discussed in paragraph 310-10-35-11, an entity's inability to make a reasonable estimate of the amount of loss from uncollectible receivables (that is, failure to satisfy the condition in paragraph 450-20-25-2(b)), precludes accrual and may, if there is significant uncertainty as to collection, suggest that the installment method, the cost recovery method, or some other method of revenue recognition be used. (See paragraph 605-10-25-4 for further guidance.) In addition, the disclosures required by paragraphs 450-20-50-3 through 50-6 shall be made.

310-10-50-24 See Section 450-20-50 for further guidance on required disclosures for loss contingencies.

310-10-50-25 Certain loan products have contractual terms that expose entities to risks and uncertainties that fall into one or more categories, as discussed in paragraph 275-10-50-1. See Section 275-10-50 for disclosure guidance related to those loan products.

310-10-50-26 Section 825-10-50 provides guidance on the required disclosure of fair values of certain assets and liabilities. Paragraph 825-10-50-14 explains that, for trade receivables and payables, no disclosure is required under that Subtopic if

21. Add paragraphs 310-10-50-27 through 50-34 and their related headings, with a link to transition paragraph 310-10-65-2, as follows:

310-10-50-27 The guidance in paragraphs 310-10-50-28 through 50-30 does not apply to the financing receivables listed in paragraph 310-10-50-7B.

310-10-50-28 An entity shall provide information that enables financial statement users to do both of the following:

1. Understand how and to what extent management monitors the creditquality of its financing receivables in an ongoing manner
2. Assess the quantitative and qualitative risks arising from the creditquality of its financing receivables.

310-10-50-29 To meet the objective in the preceding paragraph, an entity shall provide quantitative and qualitative information by class about the credit quality of financing receivables, including all of the following:

1. A description of the credit quality indicator
2. The recorded investment in financing receivables by credit quality indicator
3. For each credit quality indicator, the date or range of dates in which the information was updated for that credit quality indicator.

310-10-50-30 If an entity discloses internal risk ratings, then the entity shall provide qualitative information on how those internal risk ratings relate to the likelihood of loss.

310-10-50-31 Except as noted in the following paragraph, the guidance in paragraphs 310-10-50-33 through 50-34 applies only to a creditor's troubled debt restructurings of financing receivables. For purposes of this disclosure guidance, a creditor's modification of a lease receivable that meets the definition of a troubled debt restructuring is subject to this disclosure guidance.

310-10-50-32 This guidance does not apply to troubled debt restructurings of either of the following:

1. Financing receivables listed in paragraph 310-10-50-7B
2. Loans acquired with deteriorated credit quality (determined under Subtopic 310-30) that are accounted for within a pool.

310-10-50-33 For each period for which a statement of income is presented, an entity shall disclose the following about troubled debt restructurings of financing receivables that occurred during the period:

a. By class of financing receivable, qualitative and quantitative information, including both of the following:

b. By portfolio segment, qualitative information about how such modifications are factored into the determination of the allowance for credit losses.

310-10-50-34 For each period for which a statement of income is presented, an entity shall disclose the following for financing receivables modified as troubled debt restructurings within the previous 12 months and for which there was a payment default during the period:

a. By class of financing receivable, qualitative and quantitative information about those defaulted financing receivables, including both of the following:

b. By portfolio segment, qualitative information about how such defaults are factored into the determination of the allowance for credit losses.

310-10-55-1 The following diagram illustrates the application of loan impairment guidance discussed in Section 310-10-35.

310-10-55-2 This Example illustrates the guidance in paragraphs 310-10-35-13 through 35-24 and 310-10-35-34. Entity A (a bank) has 20 loans (not considered smaller-balance) to businesses in a town in which

the principal employer is a major corporation. Some of the loans are secured by bonds or real estate, others are unsecured. The major corporation went bankrupt and fired all of its workers. Entity A concludes that the loss of that employer has had a dire effect on the economic health of the community and its businesses. Entity A decides to review all 20 of the loans individually.

310-10-55-3 Two of the loans are not performing, and Entity A concludes that it is probable it will be unable to collect all of the cash flows on those loans as scheduled. Another five borrowers have approached Entity A for a concession, but those discussions are incomplete. Based on all available information, Entity A concludes that each of those five loans also is impaired. Entity A is unable to identify any other individual loan among the remaining 13 for which

310-10-55-4 Entity A would measure impairment on the seven loans that are individually impaired using a method permitted by Section 310-10-35, as appropriate for the loan. Entity A would consider all available information to measure the amount of the loss including the value of any collateral. If the value of the collateral, less selling costs, exceeds the recorded investment in the loan, no allowance would be provided. Entity A would consider its own experience or, to the extent relevant, the industry's collection experience in similar situations as part of the available information. In doing so, Entity A would consider the effect of information it possesses about the current economic downturn in making its best estimate of expected future cash flows for those seven loans.

310-10-55-5 Entity A would then assess whether it is probable that any loss has been incurred on the remaining 13 loans. If three of those loans are fully collateralized, no allowance should be provided under Subtopic 450-20 for those loans and they should be excluded from the assessment of the remaining 10 loans. Entity A would consider the effect of the current economic downturn to assess whether a loss has been incurred in that group of loans at the balance sheet date and to estimate the amount of loss. In doing so, Entity A would consider its historical loss experience in collecting loans in similar situations, such as the typical recovery rate, including amount and timing. However, the use of historical statistics alone would be inappropriate if the nature of the loans or current environmental conditions differ from those on which the statistics were based. Any allowance that is recorded under that Subtopic must be reasonably estimable and supported by an analysis of all available and relevant information about circumstances that exist at the balance sheet date.

310-10-55-6 The total allowance for the 20 loans should be the sum of the above components. A total allowance greater than the sum of the above components would be excessive. A total allowance less than the sum of the above components would be inadequate.

23. Add paragraphs 310-10-55-7 through 50-22 and their related headings, with a link to transition paragraph 310-10-65-2, as follows:

310-10-55-7 The following table illustrates certain of the disclosures required by paragraph 310-10-50-11B(c), (g), and (h).

310-10-55-8 The following table illustrates certain of the disclosures required by paragraph 310-10-50-29(b).

310-10-55-9 The following table illustrates certain of the disclosures required by paragraphs 310-10-50-7(b) and 310-10-50-7A.

310-10-55-10 The following table illustrates certain of the disclosures required by paragraph 310-10-50-15.

310-10-55-11 The following table illustrates certain of the disclosures required by paragraph 310-10-50-7(a).

310-10-55-12 The following table illustrates certain of the disclosures required by paragraphs 310-10-50-33 through 50-34.

e. Receivables relating to a lessor's right(s) to payment(s) from a lease other than an operating lease that should be recognized as assets in accordance with the following paragraphs:

a. Debt securities within the scope of Topic 320 (see the guidance beginning in paragraph 320-10-15-5)

b. Unconditional promises to give (for example, contributions receivable) that should be recognized as an asset in accordance with paragraphs 958-605-25-7 through 25-15

1. A transferor's interests in securitization transactions that are accounted for as sales under Topic 860

310-10-55-16 This implementation guidance addresses application of the term class of financing receivable. An entity should base its principal determination of class of financing receivable on both of the following:

a. Initial measurement attribute. Classes should first segregate financing receivables on the basis of the model under which they were initially recorded, such as any of the following:

2. Loans acquired with deteriorated credit quality (accounted for in accordance with Subtopic 310-30).

b. Entity assessment. Classes should secondarily be disaggregated to the level that an entity uses when assessing and monitoring the risk and performance of the portfolio for various types of financing receivables.This assessment should consider the risk characteristics of the financing receivables.

310-10-55-17 In determining the appropriate level of its internal reporting to use as a basis for disclosure, an entity should consider the level of detail needed by a user to understand the risks inherent in the entity's financing receivables. An entity could further disaggregate its financing receivables portfolio by considering numerous factors.Examples of factors that the entity should consider include any of the following:

An entity also may consider factors related to concentrations of credit risk as discussed in Section 825-10-55.

310-10-55-18 Classes of financing receivables generally are a disaggregation of a portfolio segment. For determining the appropriate classes of financing receivables that are related to a portfolio segment, the portfolio segment is the starting point with further disaggregation in accordance with the guidance in paragraphs 310-10-55-16 through 55-17. The determination of class for financing receivables that are not related to a portfolio segment (because there is no associated allowance) also should be based on the guidance in those paragraphs.

310-10-55-19 This implementation guidance addresses application of the term credit quality indicator. Examples of credit quality indicators include all of the following:

1. Consumer credit risk scores
2. Credit-rating-agency ratings
3. An entity's internal credit risk grades
4. Loan-to-value ratios
5. Collateral
6. Collection experience
7. Other internal metrics.

310-10-55-20 An entity should use judgment in determining the appropriate credit quality indicator for each class of financing receivables. As of the balance sheet date, the entity should use the most current information it has obtained for each credit quality indicator.

310-10-55-21 This implementation guidance addresses the meaning of the term portfolio segment. All of the following are examples of portfolio segments:

1. Type of financing receivable
2. Industry sector of the borrower
3. Risk rate(s).

310-10-55-22 A creditor should determine, in light of the facts and circumstances, both of the following:

1. How much detail it must provide to satisfy the requirements of Section310-10-50
2. How it disaggregates information into classes for assets with different risk characteristics.

A creditor must strike a balance between obscuring important information as a result of too much aggregation and overburdening financial statements with excessive detail that may not assist financial statement users to understand the entity's financing receivables and allowance for credit losses. For example, a creditor should not obscure important information by including it with a large amount of insignificant detail. Similarly, a creditor should not disclose information that is so aggregated that it obscures important differences between the different types of financing receivables and associated risks.

> Transition Related to Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

310-10-65-2 The following represents the transition and effective date information related to Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses:

1. The pending content that links to this paragraph for disclosures as of the end of a reporting period shall be effective for the first interim or annual reporting period ending on or after December 15, 2010.

2. The pending content that links to this paragraph for disclosures about activity that occurs during a reporting period is effective for the first interim or annual reporting period beginning on or after December 15, 2010.

b. For nonpublic entities, the pending content that links to this paragraph shall be effective for the first annual reporting period ending on or after December 15, 2011.

c. An entity shall provide comparative disclosures for each reporting period ending after initial adoption.

Amendments to Subtopic 310-40

310-40-50-1 As of the date of each balance sheet presented, a creditor shall disclose, either in the body of the financial statements or in the accompanying notes, the amount of commitments, if any, to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings.

310-40-50-1A For guidance on the disclosures about modifications of financing receivables, see paragraphs 310-10-50-31 through 50-34.

310-40-50-2 Information about an impaired loan that has been restructured in a troubled debt restructuring involving a modification of terms need not be included in the disclosures required by paragraphs 310-10-50-15(a) and 310-10-50-15(c) in years after the restructuring if both of the following conditions exist:

1. The restructuring agreement specifies an interest rate equal to or greater than the rate that the creditor was willing to accept at the time of the restructuring for a new loan with comparable risk.
2. The loan is not impaired based on the terms specified by the restructuring agreement.

310-40-50-3 That exception shall be applied consistently for paragraph 310-10-50-15(a) and 310-10-50-15(c) to all loans restructured in a troubled debt restructuring that meet the criteria in the preceding paragraph.

310-40-50-4 Usually, a loan whose terms are modified in a troubled debt restructuring already will be identified as impaired. However, if the creditor has written down a loan and the measure of the restructured loan is equal to or greater than the recorded investment, no impairment would be recognized in accordance with this Topic. The creditor is required to disclose the amount of the write-down and the recorded investment in the year of the write-down but is not required to disclose the recorded investment in that loan in later years if the two criteria of paragraph 310-40-50-2 are met.

26. Amend paragraphs 310-40-50-5 through 50-6, with a link to transition paragraph 310-10-65-2, as follows:

310-40-50-5 When a loan is restructured in a troubled debt restructuring into two (or more) loan agreements, the restructured loans shall be considered separately when assessing the applicability of the disclosures in paragraph 310-10-50-15

in years after the restructuring because they are legally distinct from the original loan. The creditor would continue to base its measure of loan impairment on the contractual terms specified by the original loan agreement in accordance with paragraphs 310-10-35-20 through 35-26 and 310-10-35-37.

310-40-50-6 See paragraph 310-10-50-20 for a table that summarizes the scope of the disclosure requirements in paragraph 310-10-50-15

Amendments to Subtopic 840-30

27. Add paragraphs 840-30-50-4A and 840-30-50-5A, with a link to transition paragraph 310-10-65-2, as follows:

840-30-50-4 If leasing, exclusive of leveraged leasing, is a significant part of the lessor's business activities in terms of revenue, net income, or assets, all of the following information with respect to sales-type and direct financing leases shall be disclosed in the financial statements or footnotes:

a. All of the following components of the net investment in sales-type and direct financing leases as of the date of each balance sheet presented:

i. Amounts representing executory costs (including any profit thereon) included in the minimum lease payments

b. Future minimum lease payments to be received for each of the five succeeding fiscal years as of the date of the latest balance sheet presented

c. Total contingent rentals included in income for each period for which an income statement is presented.

840-30-50-4A For guidance on disclosures about financing receivables, which includes receivables relating to a lessor's rights to payments from sales-type and direct financing leases, see the guidance beginning in paragraphs 310-10-50-5A, 310-10-50-11A, 310-10-50-27, and 310-10-50-31.

840-30-50-5 If leveraged leasing is a significant part of the lessor's business activities in terms of revenue, net income, or assets, the components of the net investment balance in leveraged leases as set forth in paragraph 840-30-25-8 shall be disclosed in the footnotes to financial statements.

840-30-50-5A For guidance on disclosures about financing receivables, which include receivables relating to a lessor's rights to payments from leveraged leases, see the guidance beginning in paragraphs 310-10-50-5A, 310-10-50-27, and 310-10-50-31.

840-30-50-6 If accounting for the effect on leveraged leases of the change in tax rates results in a significant variation from the customary relationship between income tax expense and pretax accounting income and the reason for that variation is not otherwise apparent, the lessor shall disclose the reason for that variation.

Amendments to Subtopic 270-10

270-10-50-1 Many publicly traded companies report summarized financial information at periodic interim dates in considerably less detail than that provided in annual financial statements. While this information provides more timely information than would result if complete financial statements were issued at the end of each interim period, the timeliness of presentation may be partially offset by a reduction in detail in the information provided. As a result, certain guides as to minimum disclosure are desirable. (It should be recognized that the minimum disclosures of summarized interim financial data required of publicly traded companies do not constitute a fair presentation of financial position and results of operations in conformity with generally accepted accounting principles [GAAP]). If publicly traded companies report summarized financial information at interim dates (including reports on fourth quarters), the following data should be reported, as a minimum:

a. Sales or gross revenues, provision for income taxes, extraordinary items (including related income tax effects), net income, and comprehensive income

b. Basic and diluted earnings per share data for each period presented, determined in accordance with the provisions of Topic 260

d. Significant changes in estimates or provisions for income taxes (see paragraphs 740-270-30-2, 740-270-30-6, and 740-270-30-8)

e. Disposal of a component of an entity and extraordinary, unusual or infrequently occurring items (see paragraphs 270-10-45-11A and 270-10-50-5)

i. All of the following information about reportable operating segments determined according to the provisions of Topic 280, including provisions related to restatement of segment information in previously issued financial statements:

4. Total assets for which there has been a material change from the amount disclosed in the last annual report

5. A description of differences from the last annual report in the basis of segmentation or in the measurement of segment profit or loss

6. A reconciliation of the total of the reportable segments' measures of profit or loss to the entity's consolidated income before income taxes, extraordinary items, and discontinued operations. However, if, for example, an entity allocates items such as income taxes and extraordinary items to segments, the entity may choose to reconcile the total of the segments' measures of profit or loss to consolidated income after those items. Significant reconciling items shall be separately identified and described in that reconciliation.

j. All of the following information about defined benefit pension plans and other defined benefit postretirement benefit plans, disclosed for all periods presented pursuant to the provisions of Subtopic 715-20:

1. The amount of net periodic benefit cost recognized, for each period for which a statement of income is presented, showing separately the service cost component, the interest cost component, the expected return on plan assets for the period, the gain or loss component, the prior service cost or credit component, the transition asset or obligation component, and the gain or loss recognized due to a settlement or curtailment

2. The total amount of the employer's contributions paid, and expected to be paid, during the current fiscal year, if significantly different from amounts previously disclosed pursuant to paragraph 715-20-50-1. Estimated contributions may be presented in the aggregate combining all of the following:

k. The information about the use of fair value to measure assets and liabilities recognized in the statement of financial position pursuant to paragraphs 820-10-50-1 through 50-6

l. The information about derivative instruments as required by Sections 815-10-50, 815-20-50, 815-25-50, 815-30-50, and 815-35-50

n. The information about certain investments in debt and equity securities as required by Sections 320-10-50 and 942-320-50

o. The information about other-than-temporary impairments as required by Sections 320-10-50, 325-20-50, and 958-320-50

p. All of the following information about the credit quality of financing receivables and the allowance for credit losses determined in accordance with the provisions of Topic 310:

2. Allowance for credit losses related to financing receivables (see paragraphs 310-10-50-11A through 50-11C)

4. Credit quality information related to financing receivables (see paragraphs 310-10-50-27 through 50-30)

If summarized financial data are regularly reported on a quarterly basis, the foregoing information with respect to the current quarter and the current year-to-date or the last 12 months to date should be furnished together with comparable data for the preceding year.

Amendments to Section 450-20-50

450-20-50-1 Disclosure of the nature of an accrual made pursuant to the provisions of paragraph 450-20-25-2, and in some circumstances the amount accrued, may be necessary for the financial statements not to be misleading. Terminology used shall be descriptive of the nature of the accrual, such as estimated liability or liability of an estimated amount. The term reserve shall not be used for an accrual made pursuant to paragraph 450-20-25-2; that term is limited to an amount of unidentified or unsegregated assets held or retained for a specific purpose. Examples 1 (see paragraph 450-20-55-18) and 2, Cases A, B, and D (see paragraphs 450-20-55-23, 450-20-55-27, and 450-20-55-32) illustrate the application of these disclosure standards.

450-20-50-2 If the criteria in paragraph 275-10-50-8 are met, paragraph 275-10-50-9 requires disclosure of an indication that it is at least reasonably possible that a change in an entity's estimate of its probable liability could occur in the near term. Example 3 (see paragraph 450-20-55-36) illustrates this disclosure for an entity involved in litigation.

450-20-50-2A The disclosures required by paragraphs 450-20-50-3 through 50-6 do not apply to loss contingencies arising from an entity's recurring estimation of its allowance for credit losses. (See paragraph 310-10-50-21.)

450-20-50-3 Disclosure of the contingency shall be made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred and either of the following conditions exists:

1. An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met.
2. An exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 450-20-30-1.

Examples 1–3 (see paragraphs 450-20-55-18 through 55-37) illustrate the application of these disclosure standards.

1. The nature of the contingency
2. An estimate of the possible loss or range of loss or a statement that such an estimate cannot be made.

450-20-50-5 Disclosure is preferable to accrual when a reasonable estimate of loss cannot be made. For example, disclosure shall be made of any loss contingency that meets the condition in paragraph 450-20-25-2(a) but that is not accrued because the amount of loss cannot be reasonably estimated (the condition in paragraph 450-20-25-2[b]). Disclosure also shall be made of some loss contingencies that do not meet the condition in paragraph 450-20-25-2(a)— namely, those contingencies for which there is a reasonable possibility that a loss may have been incurred even though information may not indicate that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements.

450-20-50-6 Disclosure is not required of a loss contingency involving an unasserted claim or assessment if there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless both of the following conditions are met:

1. It is considered probable that a claim will be asserted.
2. There is a reasonable possibility that the outcome will be unfavorable.

The amendments in this Update were adopted by the unanimous vote of the five members of the Financial Accounting Standards Board:

Background Information and Basis for Conclusions

Introduction

BC1. The following summarizes the Board's considerations in reaching the conclusions in this Update. It includes reasons for accepting certain approaches and rejecting others. Individual Board members gave greater weight to some factors than to others.

Background Information

BC2. In January 2007, the Board added a project to its agenda on disclosures about the credit quality of financing receivables and allowance for credit losses.To provide more timely guidance on the allowance for credit losses and the related financing receivable disclosures, the Board determined that this project would focus on disclosures and not address the recognition and measurement of financing receivables. The Board issued an Exposure Draft of a proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities: Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815), on May 26, 2010, which addresses recognition and measurement of financial instruments, including financing receivables.

BC3. The Board issued an Exposure Draft of a proposed Statement, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, on June 24, 2009. The Board received 73 comment letters in response to questions in the proposed Statement. The Board considered those comments during its redeliberations of the issues addressed by the proposed Statement at public meetings in February, April, and June 2010 and reconsidered or clarified some aspects of the proposals.

BC4. The amendments in this Update require new disclosures and enhance current disclosures about the allowance for credit losses and the credit quality of financing receivables—including, but not limited to, information about the credit quality of a creditor's portfolio and credit risk exposures. The amendments also provide greater transparency of a creditor's accounting policies.

Scope

BC5. The Board considered whether certain entities should be excluded from the scope of the amendments in this Update on the basis of size, nonpublic status, or industry. The Board concluded that all entities that lend money via financing receivables should provide information to financial statement users about the credit characteristics of the entity's financing receivable portfolios as well as the related allowance for credit losses. Accordingly, the amendments apply to all creditors, including all public and nonpublic entities that prepare financial statements in accordance with U.S. GAAP.

BC6. The Board determined that the disclosure amendments in this Update generally should apply to a creditor's financing receivables. This Update adds the term financing receivable to the Master Glossary of the Accounting Standards Codification. Examples of financing receivables include loans, trade receivables, notes receivable, and receivables relating to a lessors' leveraged, direct financing, and sales-type leases. However, the Board excluded receivables measured at fair value with changes included in earnings and receivables measured at lower of cost or fair value from the scope because the amended disclosures about the allowance for credit losses are less relevant to those receivables, and the Board concluded that the existing disclosure requirements in Topics 820 and 825 provide sufficient relevant information about financing receivables measured at fair value or at lower of cost or fair value to enable users to understand the risks associated with those assets.

BC7. The Board excluded trade receivables with contractual maturities of one year or less that arose from the sale of goods or services, except for credit card receivables, from the scope of the amendments in this Update because of the cost versus benefit of providing the required disclosures. As part of its redeliberations, the Board considered whether leveraged leases should be within the scope of the disclosures in this Update. The Board noted that a lessor generally monitors the credit risk of its leveraged lease receivables in a similar manner as direct finance leases and determined that the credit quality disclosures should apply to leveraged leases. The Board concluded that the amended disclosures about the allowance for credit losses generally are not relevant to leveraged leases and should not apply to those lease receivables.

BC8. The following instruments were specifically excluded from the scope of the disclosures required by the amendments in this Update because of the nature of the instrument and the cost versus the benefit of providing such information.

1. Debt securities as defined in Topic 320 on debt and equity securities
2. Unconditional promises to give (for example, contributions receivable) that are assets of not-for-profit entities, as discussed in Topic 958 on not-for-profit entities
3. Acquired beneficial interests or the transferor's beneficial interests in the transferred financial assets, as discussed in Subtopic 325-40 on beneficial interests in securitized financial assets.

Overall Approach

BC9. In developing the amendments in this Update, the Board considered all existing information about credit quality and the allowance for credit losses that is required to be disclosed by accounting standard setters and regulators as the foundation for the disclosures to be required by the amendments in this Update.Specifically, the Board considered the following information:

1. Current U.S. GAAP requirements
2. Current guidelines from the Securities and Exchange Commission (SEC) staff
3. Current IFRS requirements
4. Federal Financial Institutions Examination Council Regulatory Reports, including Reports of Condition and Income (FFIEC Call Reports), Thrift Financial Report for Office of Thrift Supervision regulated institutions and Form 5300 Call Reports for credit unions
5. Issuers' SEC filings, earnings releases, and presentation material.

1. To expand the credit quality disclosures to provide more transparent financial reporting to investors
2. To incorporate into U.S. GAAP certain information that is already required to be disclosed to financial statement users by U.S. bank and securities regulators
3. To more closely align U.S. GAAP with current IFRS disclosure requirements.

BC11. The Board noted that current disclosures are required to be presented differently depending on the source of guidance and the specific disclosure. For example, current U.S. GAAP requirements related to the allowance for credit losses require only a rollforward of the allowance in the aggregate. However, certain SEC loan loss disclosures—such as those for accruing loans past due 90 days, nonaccrual loans, and the charge-off and recoveries portion of the allowance for credit losses—are required to be disaggregated by domestic and foreign loans. The charge-off and recoveries information also is required to be presented with further disaggregation by loan-type categories, such as commercial, financial, and agricultural; real estate construction; real estate mortgage; installment loans to individuals; and lease financing.

BC12. The Board also noted that even though U.S. GAAP currently does not require specific credit quality disclosures, most public company issuers disclose some level of disaggregated credit quality information in their quarterly investor presentations and press releases. Examples of disaggregation by credit quality indicator include differentiating by current consumer credit risk score and various categories of current loan-to-value ratios; however, this credit quality information generally relates only to a portion of the portfolio and varies between entities.

BC13. On the basis of those data, the Board determined that the amendments in this Update should provide disaggregation guidance within all credit quality and allowance for credit loss disclosures to enhance consistency and comparability within the portfolio and over the periods included in the financial statements. The Board concluded that this will improve the cohesiveness and relevance of the disclosures.

Key Terms

Portfolio Segment

BC14. The Board noted that the allowance for credit loss disclosure under U.S. GAAP is currently required to be presented only on an aggregate basis. The Board determined that it would be beneficial to financial statement users to further disaggregate this disclosure to the level at which the allowance for credit losses is calculated and monitored. Therefore, the Board defined the term portfolio segment to be consistent with the way a creditor is expected to develop its allowance for the credit losses method on the basis of the guidance in paragraph 310-10-S99-4 and, for financial institutions subject to the guidance of the FFIEC, the Interagency Policy Statement on Allowance for Loan and Lease Losses. 1

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1 The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration issued this policy statement in 2006 for the purpose of ensuring consistency with U.S. GAAP and relevant supervisory guidance.

Class

BC15. The amendments in this Update will require disaggregation by class for the following credit risk disclosures: credit quality indicators, age analysis of past due financing receivables, impaired financing receivables, and financing receivables on nonaccrual status. The Board concluded that having a consistent approach to disaggregation by class across those credit risk disclosures will provide financial statement users with the most useful and transparent level of comparison because the information will be reported at the same level of detail in which the financing receivables are monitored and assessed within the entity. The Board considered providing specific classes that would be required to be disclosed because that would ensure uniformity in reporting. However, the Board decided that developing prescribed classes would make the disclosures too rigid and would not provide financial statement users with the same level of transparency that management is able to provide by determining classes on the basis of its business model and risk management practices. The Board intends that classes generally should be consistent for each type of disclosure; however, for various disclosures (for example, modifications), management may utilize different classes when assessing and monitoring the associated risk.

BC16. The Board notes that the guidance for determining classes of financing receivables requires disaggregation by both initial measurement attribute, the level that an entity uses when assessing and monitoring the risk and performance of the portfolio, and the risk characteristics of the financing receivables. The Board noted that the class disaggregation principle is similar to the disaggregation principle within IFRS. The primary principle in IFRS 7 for disclosing risk arising from financial instruments is that the disclosure should be based on the information provided internally to an entity's key management personnel (as defined in IAS 24, Related Party Disclosures). To the extent that the information is not specified in the primary principle, IFRS 7 requires certain loan loss disclosures, such as a reconciliation of the changes in the allowance, past due loans, and individually determined to be impaired loans, to be reported by class of financial asset.

BC17. IFRS 7 does not define class of financial instruments and does not specify the exact classes or categories for disclosure requirements. Rather, it provides flexibility in permitting the reporting entity to determine its classes of financial assets for disclosure purposes. Paragraph 6 of IFRS 7 states that “an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the statement of financial position.” Paragraph B2 in Appendix B of IFRS 7 indicates that the classes must, at a minimum, distinguish instruments measured at amortized cost from those measured at fair value and treat as a separate class those financial instruments that are outside the scope of IFRS 7.

Disclosures

BC18. The Board determined that the disclosures about the allowance for credit losses should be provided by portfolio segment. The portfolio segment is determined on the basis of management's method for determining the allowance for credit losses. The Board requires disclosures about credit quality information, aging analysis, impaired financing receivables, and nonaccrual status on a byclass basis to provide more detail about a creditor's financing receivables. A class of financing receivables is intended to be consistent with either the breakdown of portfolio segment or a more disaggregated breakdown and, therefore, in certain circumstances, will provide more transparency into the risks of an entity's financing receivables.

BC19. The disclosure requirements for the allowance for credit losses must be disaggregated by portfolio segment. The disclosures require an entity to describe its accounting policies and methodology used to estimate its allowance for credit losses, including the identification of any changes to the entity's accounting policies or methodology from the prior period and the entity's rationale for the change. An entity also is required to disclose the quantitative effect of those changes in accounting policies or methodology on current-period provision. The Board concluded that this additional disclosure will provide financial statement users with more insight about an entity's changes in accounting policies and methodology in determining its allowance for credit losses and the quantitative effects of those changes. For example, the Board believes that this disclosure will require management to separately identify the quantitative effect of a shift from a historical loss rate on a portfolio basis to a percentage loss being applied on the basis of specific loan grading or other similar changes in accounting policies or methodology. The Board considered specifying in the guidance that an entity only is required to disclose the quantitative effect of changes in accounting policies or methodology when material. But, the Board concluded that no specific reference to materiality was necessary, because judgments about materiality apply to all disclosure requirements.

BC20. The proposed disclosures in the proposed Statement also would have required an entity to disclose a rollforward of financing receivables by portfolio segment. Respondents who commented on that proposed rollforward questioned the operationality and usefulness of providing that information. The Board removed the proposed requirement to roll forward receivables by portfolio segment and added a requirement to disclose the recorded investment in financing receivables related to the ending balance of the allowance for credit losses. Both ending balances are provided by portfolio segment and are further disaggregated on the basis of the creditor's impairment methodology. A creditor must separately disclose amounts related to items collectively evaluated for impairment under Subtopic 450-20, amounts related to items individually evaluated for impairment under Section 310-10-35, and amounts related to loans acquired with deteriorated credit quality. In addition, the Board also added a requirement to disclose significant purchases and sales of financing receivables and reclassifications of financing receivables as held for sale during the period on a portfolio segment basis because this would provide useful information to financial statement users but would eliminate some of the operational challenges that preparing a complete rollforward of financing receivables would create. The Board concluded that these disaggregated disclosures will provide enhanced transparency by portfolio segment to financial statement users.

BC21. The Board decided that an entity's objective in providing credit quality disclosures is to provide both of the following:

1. Information that enables a reader to evaluate how and to what extent management monitors the credit quality of its financing receivables on an ongoing manner
2. Information about credit quality indicators that enables a reader to evaluate the credit quality of an entity's financing receivables.

BC22. The disclosure of credit quality indicators is designed to align more closely with IFRS. The amendments in this Update require an entity to provide quantitative and qualitative information about credit quality indicators of financing receivables. The Board has provided additional guidance on determining credit quality indicators in Section 310-10-55. The Board considered whether an entity should be required to provide credit quality indicators for loans acquired with deterioration in credit quality (purchased credit impaired loans). The Board noted that those loans often are accounted for within a pool and that credit impairment of those loans was reflected in their acquisition price. Given that the disclosures about credit quality indicators (a) are based on how and to what extent management monitors the credit quality of its financing receivables and (b) must be disaggregated by class (which requires receivables with different initial measurement attributes to be reported in separate classes), the Board concluded that users would benefit from the additional information about credit quality indicators of purchased credit impaired loans.

BC23. The amendments in this Update also require an entity to provide an analysis of past due financing receivables. That analysis should provide information about the length of time the financing receivable has been past due. For existing disclosures about nonaccrual and past due loans that are still accruing, the amendments in this Update require an entity to disaggregate those disclosures by class. The Board decided that past due and nonaccrual disclosures should not apply to purchased credit impaired loans. The Board noted that the past due and nonaccrual status of purchased credit impaired loans is not relevant when measuring credit impairment under Subtopic 310-30. The Board considered excluding certain impaired loans from these disclosure requirements. However, the Board decided that past due and nonaccrual disclosures for an entire portfolio would enable users to understand the overall performance of an entity's financing receivables. Impaired loan disclosures also are amended to include a disaggregation by class and the unpaid principal amount on a per class basis, which is similar to what is required by regulatory reporting.

BC24. The proposed Statement would have required disclosure of the fair value of financing receivables by portfolio segment to further disaggregate the disclosures required by Subtopic 825-10. The Board determined that the fair value disclosures would be more appropriately addressed as part of the broader project on accounting for financial instruments because that project is reconsidering the measurement attribute for loans as well as the fair value disclosures for financial instruments. Therefore, the Board removed that proposed disclosure from the final amendments.

BC25. Financial statement users recommended that the Board enhance disclosure requirements about modifications and subsequent defaults. The Board limited the scope of these disclosures to troubled debt restructurings that occurred during each period and payment defaults of financing receivables in each period that had been restructured as troubled debt restructurings within the previous 12 months. The Board noted that existing impairment and disclosure guidance about troubled debt restructurings does not apply to changes in lease arrangements. However, the Board concluded that a restructuring of a lease arrangement that meets the definition of a troubled debt restructuring is similar to a restructuring of other financing receivables and, therefore, should be subject to the new disclosure requirements about modifications. The Board also concluded that disclosures about how modification transactions are factored into the determination of the allowance should be disaggregated on the basis of portfolio segment. In addition, the Board concluded that the other disclosures about modifications and subsequent defaults should be provided by class.

Effective Date and Transition

BC26. The proposed Statement would have required that the disclosures be effective for interim and annual reporting periods after December 15, 2009.Respondents generally disagreed with the proposed effective date and stated that additional time would be necessary for entities to comply with the expanded disclosure requirements. Those respondents stated that entities needed that time to make necessary information systems changes and to comply with other accounting requirements with the same effective date.

BC27. For disclosures as of the end of a reporting period, the Board amended the effective date for public entities to interim and annual reporting periods ending on or after December 15, 2010. The Board concluded that it is important that enhanced disclosures be available to financial statement users as soon as practicable. The Board also concluded that most of the information required by the amendments in this Update already is available because the disaggregation criteria are based on the way that management manages risk and determines the allowance for credit losses. However, the Board decided that an entity should not be required to disclose activity that occurred before the issuance of this Update. Accordingly, for public entities, the amendments to the rollforward of the allowance for credit losses and the new disclosures about modifications are effective for interim and annual reporting periods beginning on or after December 15, 2010.

BC28. The Board decided to provide a one-year delayed effective date for nonpublic entities. The Board considered both the annual cycle for education about new accounting standards for nonpublic entities and the benefit of seeing these disclosures being applied by public entities in their financial statements. For nonpublic entities, the amendments in this Update are effective for annual reporting periods ending on or after December 15, 2011. For periods ending after initial adoption, the amendments require comparative disclosures only for periods after initial adoption. Comparative disclosures for earlier reporting periods that ended before initial adoption are encouraged but are not required.

Benefits and Costs

BC29. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. However, the benefits of providing information for that purpose should justify the related costs. Present and potential investors, creditors, donors, and other users of financial information benefit from improvements in financial reporting, while the costs to implement a new standard are borne primarily by present investors. The Board's assessment of the costs and benefits of issuing an accounting standard is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement an accounting standard or to quantify the value of improved information in financial statements.

BC30. The Board decided to require the enhanced disclosures because, in its view, those disclosures will greatly clarify the credit quality composition of a creditor's financing receivables portfolio and, therefore, provide financial statement users with more useful information. The disaggregation guidance is designed to be consistent with current practices that the entity is using to monitor the credit quality of its financing receivables and allowance for credit losses. And, many entities already provide similar disclosures to financial statement users. Because the disclosures are based on existing practices, the Board believes that the amendments in this Update will not impose significant costs on its constituents.

BC31. The Board limited the scope of the amendments in this Update to certain financing receivables. In considering the cost versus benefit of applying the guidance to specific instruments, the Board specifically excluded trade receivables with contractual maturities of one year or less that arose from the sale of goods or services, except for credit card receivables, because it does not believe that the benefit of these disclosures exceed the incremental costs of tracking and reporting such information.