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Some Debt Instruments Will Be Left Out of Planned Writedown Model

The FASB decided that debt instruments classified as available-for-sale won’t be included in the impairment model it’s developing. But the model will be applied to debt instruments that are marked at their historical cost and are classified as held-to-maturity.

The FASB decided at its August 13, 2015, meeting that debt instruments classified as available-for-sale won’t be included in the current expected credit losses (CECL) impairment model it’s developing.

Instead, the securities will be marked down according to the guidance in FASB ASC 320, Investments — Debt and Equity Securities,

The CECL model will still be applied to debt instruments that are marked at their historical cost and are classified as held-to-maturity, the FASB said.

The FASB also said that an allowance should be set aside for recognizing writedowns, which will allow losses to be reversed if the instruments’ crediworthiness improves.

The FASB said it wants to amend FASB ASC 320-10-35-33F(a) Investments — Debt and Equity Securities — Overall — Subsequent Measurement, to remove the requirement to consider the length of time that the fair value of an available-for-sale debt security has been less than its amortized cost basis when estimating whether a credit loss exists.

The board also wants to remove the guidance in FASB ASC 320-10-35-33F(g) from U.S. GAAP.

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