The Securities Industry and Financial Markets Association (SIFMA) asked the FASB to extend the comment period on proposed accounting rules for purchased financial assets by three months, stressing the significance of the changes to member firms.
The group asked that the period to opine on Proposed Accounting Standards Update (ASU) No. 2023-ED400, Financial Instruments—Credit Losses (Topic 326): Purchased Financial Assets, be extended from Aug. 28 to Nov. 15, as financial institutions need to focus this summer on core work to meet pressing regulatory requirements.
The current deadline “coincides with a quarter-end reporting period for many of our members, who are generally all U.S. Securities and Exchange Commission filers subject to rigid reporting deadlines,” SIFMA’s Deputy General Counsel (Institutional) & Managing Director Kevin Zambrowicz wrote in a July 7, 2023, letter to the FASB. “As a result, most of our members will first be able to start focusing on their response halfway through or near the end of what is an already fairly brief comment period for a proposal of such complexity.”
The proposal is also “potentially very significant to SIFMA member firms,” Zambrowicz said. “An extended comment period would provide more time for the industry to formulate a more comprehensive response by soliciting feedback from all our relevant stakeholders including our credit risk management, financial reporting and investor relations groups.”
SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. It is also the U.S. regional member of the Global Financial Markets Association (GFMA). SIFMA’s broker-dealer members comprise 80 percent of U.S. market share by revenues and 70 percent of financial advisors managing $18 trillion of client assets. Its asset management members manage more than 50 percent of global assets under management.
It is not yet clear whether the FASB will grant the comment period delay. “We will consider all feedback received from comment letters as part of the Board’s redeliberation process,” a board spokesperson said in response to a Thomson Reuters query on July 12.
The proposal was issued on June 27 after two years of FASB discussions starting in July 2021. The guidance was developed in response to concerns raised by board stakeholders that current rules around purchased credit deteriorated (PCD) assets are complex and do not result in useful information for investors.
The provisions come at a time when consolidations among financial institutions have increased due to market stresses.
If finalized, the guidance will amend Topic 326, Credit Losses, to provide a single accounting model for all acquired financial assets, including both PCD and high-quality loans.
Specifically, the proposal aims to expand the PCD model so that all acquired loans are accounted for the same way under a new term ”purchased financial assets (PFA).” Currently, there are two different models for acquired financial assets: 1) PCD; and 2) non-PCD. (See FASB Proposes to Amend Credit Loss Accounting Rules to Simplify Reporting of Purchased Financial Assets in the June 28, 2023, edition of Accounting & Compliance Alert.)
Topic 326 took effect this year for small public companies, private companies and not for profit organizations. The standard is under post-implementation review (PIR), a standing FASB process to determine whether a broad accounting standard worked as intended.
For in-depth analysis of the FASB’s guidance for credit losses, please see Catalyst: US GAAP—Financial Instruments-Impairment, also on Checkpoint.
This article originally appeared in the July 13, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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