Accounting for Receivable Losses Could Be Simplified Soon

Good regulatory news may be on the horizon.

The Financial Accounting Standards Board (FASB)’s rule regarding how companies account for future credit losses may soon change, simplifying life for Accounts Receivable professionals.  

The Current Expected Credit Losses (CECL) model requires companies to estimate future credit losses on accounts receivable. It's complex and time-consuming and is rarely material.

The new FASB rule allows you to use historical loss data if you can't make a reasonable forecast. You’ll even be able to record zero credit loss if all receivables are collected before the financial statements are issued.

This rule change is only applicable to private companies and not-for-profits; it does not change the rule for public companies.

The final update might be issued by the second quarter of 2025, affecting how you have to report 2024 financial statements.

Action Items To Prepare for the Change:

Review Historical Data: Ensure you have accurate historical loss data to make your life easier if this rule goes into effect.

Monitor Collections: Keep close track of receivables collected before issuing financial statements.

Watch This Space: IOFM will follow FASB’s announcements for the final decision.