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Remarks before the 2017 AICPA Conference on Current SEC and PCAOB Developments

Robert B. Sledge, Professional Accounting Fellow, Office of the Chief Accountant

Washington D.C.

Dec. 4, 2017

The Securities and Exchange Commission (“SEC” or “Commission”) disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.


Good morning, it is a pleasure to be here today. I would like to provide an update on the implementation of the new credit losses standard.[1]

A year ago at this conference, one of my colleagues observed that the staff in the Office of the Chief Accountant (OCA) was “actively monitoring the implementation of the new credit losses standard.”[2] Those monitoring efforts continued throughout 2017, and I was pleased to see the pace of implementation activity pick up in a meaningful manner. Stakeholders raised various interpretive questions to the FASB’s Transition Resource Group (TRG) for Credit Losses, which resulted in discussions at one TRG meeting[3] and two FASB meetings.[4] OCA staff also participated in many meetings with stakeholders, including individual registrants, industry groups, accounting firms, other regulators, and the FASB staff. In addition, my colleagues in OCA gave multiple speeches that addressed the implementation of the new credit losses standard.[5]

In recent months, the staff’s involvement has continued to evolve, as registrants have begun engaging in pre-filing consultations with the staff on issues related to the new credit losses standard. I believe that this is a positive sign, and want to remind registrants that the staff is available for consultation if it would be helpful to a registrant’s implementation efforts.[6]

Today I would like to share some observations on a few recently completed pre-filing consultations.

General expected credit losses approach versus approaches for collateral dependent loans

To put the first pre-filing consultation into context, I observe that one implementation activity for a company is to identify the accounting models within the new credit losses standard that are likely to be applicable, including developing an initial view on whether the company intends to elect any of the practical expedients.

One pre-filing consultation the staff received focused on the differences between measuring credit losses under the general expected credit losses approach[7] and the approaches for collateral-dependent financial assets.[8] For collateral-dependent financial assets where foreclosure is probable, a company is required to measure expected credit losses based on the collateral’s fair value. However, if a company determines that the asset is collateral-dependent but foreclosure is not probable, it can elect to apply a practical expedient to measure expected credit losses based on the collateral’s fair value.[9]

The registrant sought the staff’s views on the application of the general expected credit losses approach to, for example, a portfolio of consumer loans where the registrant had received notice of the borrowers’ bankruptcies, but foreclosure was deemed to be not probable. The registrant anticipated that it would elect not to apply the practical expedient and would apply the general expected credit losses approach to that portfolio. The registrant concluded that in applying the general expected credit losses approach, it would incorporate all relevant information about expectations of future cash flows, such as payment history of similar loans and delinquency status, when determining the allowance for credit losses (and not measure credit losses based on the fair value of the collateral). The staff did not object to the registrant’s conclusion.

Scopes of PCI loans and PCD financial assets

Turning to my second topic, I will discuss two pre-filing consultations that highlight the change from the purchased credit impaired (PCI) model currently contained in Subtopic 310-30[10] to the purchased credit deteriorated (PCD) model[11] under the new credit losses standard.

Before discussing the staff’s views about the scope of the new PCD model, I think it is helpful to understand how the scope of the PCI model under current GAAP has been viewed by the staff. Under existing GAAP, the staff has not objected to the application of the PCI model by analogy in certain circumstances in the absence of further standard-setting.[12] However, in those consultations, the staff did not address whether it would object to application of the PCI model by analogy in other circumstances.

In a recent pre-filing consultation with the staff, a registrant sought to apply the PCI model by analogy in the following fact pattern: The registrant acquired defaulted, unsecured receivables from financial institutions at a significant discount in multiple transactions. The registrant concluded that those transfers of financial assets did not quality for sale accounting under Topic 860, and so the registrant accounted for the transactions as the origination of new loans that are collateralized by the defaulted receivables.[13] The staff objected to the registrant applying the PCI model by analogy to the collateralized loans because the staff viewed that Subtopics 310-10 and 310-20 provided applicable and on-point guidance for originated loans.

The staff has also been consulted on the scope of the PCD model under the new credit losses standard. One pre-filing consultation with the staff involved whether consumer installment loans that the registrant purchases immediately after they are originated by a retailer in connection with the sale of goods would qualify for the PCD model. The staff objected to the view that these loans would qualify for the PCD model because there was no credit-deterioration associated with the loans at the date of initial recognition, particularly since the loans were purchased shortly after origination. The staff also considered whether loans that the registrant originates to retailers and that are collateralized by consumer installment loans made by the retailers in connection with the sale of goods would qualify for the PCD model. The staff concluded that application of the PCD model would not be appropriate in that fact pattern because the loans made to the retailers are originated, rather than purchased.


Thank you for your attention, and I look forward to speaking with many of you over the next year.

[1] FASB Accounting Standards Update (ASU) 2016-13 Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

[2] See Sean May, Remarks before the 2016 AICPA Conference on Current SEC and PCAOB Developments (December 5, 2016), available at

[3] See FASB Transition Resource Group June 12, 2017 meeting materials at:

[4] See FASB September 6, 2017 Board meeting discussion summary available at and FASB October 4, 2017 Board meeting discussion summary available at

[5] See, e.g., Wesley R. Bricker, Remarks before the Financial Executives International 36th Annual Current Financial Reporting Issues Conference: Effective Financial Reporting in a Period of Change (November 14, 2017), available at, Remarks before the 2017 Baruch College Financial Reporting Conference: Advancing Our Capital Markets with High-Quality Information (May 4, 2017), available at, Remarks before the AICPA National Conference on Banks & Savings Institutions: Advancing High-Quality Financial Reporting in Our Financial and Capital Markets (September 11, 2017), available at, and Sagar Teotia, Remarks before the San Diego Chapter of the Financial Executives Institute, Addressing Implementation Matters to Improve Financial Reporting (September 21, 2017), available at

[6] See Guidance for Consulting with the Office of the Chief Accountant, available at:

[7] See ASC 326-20-30-1 to 30-9.

[8] A collateral-dependent financial asset is one where the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of collateral (ASC 326-20-35-5).

[9] See ASC 326-20-35-4 and 35-5.

[10] Formerly, AICPA Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer.

[11] See ASC 326-20-30-13 to 30-15.

[12] For example, see letter from AICPA Depository Institutions Expert Panel to the Office of the Chief Accountant, dated December 18, 2009, available at:

[13] ASC 860-30-25-2 requires that the accounting for a transfer of financial assets within the scope of Topic 860 be symmetrical between the transferor and the transferee. If the transferor is unable to recognize a “true sale” for accounting purposes because the transaction does not meet the conditions in ASC paragraph 860-10-40-5 or the definition of a participating interest, then the transferee is similarly unable to recognize a “true purchase” for accounting purposes.

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