ABA recommends changes to proposed financial asset accounting standards

The American Bankers Association on Wednesday recommended several revisions to a proposed Financial Accounting Standards Board update concerning accounting for acquired financial assets. The FASB exposure draft currently in consideration would eliminate the requirement to identify a purchased financial asset with more-than-insignificant credit deterioration (PCD assets). It would also apply the gross-up model, currently applied to PCD assets, to all acquired, seasoned financial assets, including those acquired as part of a business combination.

In its comments, ABA offered several proposed changes to the exposure draft that its members view as necessary to achieve FASB’s intended objectives of enhancing comparability and reducing the complexity resulting from two acquisition accounting approaches. Those objectives require harmonization of the gross-up model across the expanded population of acquired financial assets, the association said.

“To do so, the requirement to account for discounts, premiums and expected credit losses at the individual financial asset level must be amended,” ABA said. “Amending the individual financial asset level requirement will create closer alignment with current accounting practices and will have the additional benefit of addressing many of the identified operational concerns stemming from the proposed amendments. In addition, the transition method must be amended to a prospective approach with an option to apply a modified retrospective approach.”