The development of expected-loss methods of accounting for credit losses:A review with analysis of comment letters

O'Hanlon, John and Hashim, Noor and Li, Weijia (2021) The development of expected-loss methods of accounting for credit losses:A review with analysis of comment letters. Accounting Horizons. pp. 1-59. ISSN 0888-7993 (In Press)

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Abstract

After the financial crisis of the late 2000s, concern about delayed credit-loss recognition under the incurred-loss method prompted the FASB and the IASB to develop expected-loss methods. We review the development of these methods, including through comment-letter analysis. Initially, the FASB recommended immediate full recognition of expected losses, including at day one, and the IASB recommended spreading the recognition of initially-expected losses across time. After unsuccessful attempts to converge based on proposals that partly reflected initial recommendations of each board, the boards eventually adopted different methods. We report that U.S. respondents largely opposed the FASB's final method, which required day-one recognition of all expected losses, and that non-U.S. respondents largely supported the IASB's final method, which required day-one recognition of 12-month expected losses. Day-one loss was controversial and impeded convergence. Our comment-letter analysis suggests that a day-one-loss-free more forward-looking incurred-loss method might provide a route to a more converged solution.

Item Type:
Journal Article
Journal or Publication Title:
Accounting Horizons
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2001
Subjects:
ID Code:
156216
Deposited By:
Deposited On:
16 Jun 2021 13:56
Refereed?:
Yes
Published?:
In Press
Last Modified:
14 Sep 2021 09:06