Letter to FASB re: Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities

Dear Mr. Day:

The American Bankers Association (ABA) welcomes the opportunity to comment on Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities ("the Exposure Draft," or "ED"). Virtually all ABA members prepare financial statements in accordance with GAAP and measurement of credit losses may be the most important accounting issue to them. With a 2020 effective date for many members and consistent dialogue with investors, auditors, banking examiners and other regulators, ABA members know fully well the accounting-related challenges of credit loss measurement.

Forecasting credit losses is inherently difficult and highly judgmental, and the lifetime loss basis of CECL necessitates costly data and complex analyses that often seem formidable, especially as financial statement preparers strive to satisfy auditor documentation requirements. While this ED addresses trade accounts receivables and not loans and debt securities, the ED recognizes these challenges and we encourage the Board and the Private Company Council to continue to seek out practical solutions for companies of all sizes and ownership structures as well as for other assets (such as loans and debt securities).

With this in mind, the ED appears to respond to auditor interpretations and documentation demands that are inconsistent with those occurring during bank audits. While the ED addresses accounts receivable and not loans and debt securities, the challenges do not appear to be unique to these specific assets. Therefore, we fear that the changes proposed may eventually and unintentionally narrow the range of acceptable judgment currently applied and documented in the audits of bank assets. As a result, as opposed to codifying a certain practical expedient and policy election for a specific estimation method, we believe addressing the concerns through a FASB staff Q&A document would be more responsive to current practice challenges.

On the attachment, we address certain questions that are posed in the ED.

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