PHOENIX As two major accounting standards groups attempt to improve the quality of financial instrument reporting, one expert said new problems are being created.
With the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) continuing their convergence efforts, one joint project has focused on accounting for financial instruments. Monday at the CUNA CFO Council conference here, Todd Sprang, CPA and partner in Oakbrook, Ill.-based CliftonLarsonAllen LLP, said the project is supposed to address the topic of incurred loss versus expected loss.
“Weaknesses were identified following the economic crisis specifically the delayed recognition of credit losses under the incurred loss model,” he explained. The expected loss model was released Dec. 20, 2012. Sprang said it requires an estimate of present value of cash flows not expected to be collected based on quantitative and qualitative information, including historical loss experience, current conditions and borrower credit worthiness. It also proposes to include forecasts of expected credit losses and of the direction of the economic cycle. Sprang said the latter two are very difficult to estimate, much less document.
“I do not see this as a very workable solution,” he declared. “It is very difficult to foresee economic conditions over the life of a loan. There are a lot of subjective factors.”
