Citibank 2013 Annual Report Download - page 187

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Accounting for Financial Instruments—Credit Losses
In December 2012, the FASB issued a proposed ASU, Financial
Instruments—Credit Losses. This proposed ASU, or exposure draft, was
issued for public comment in order to allow stakeholders the opportunity
to review the proposal and provide comments to the FASB, and does not
constitute accounting guidance until a final ASU is issued.
The exposure draft contains proposed guidance developed by the FASB
with the goal of improving financial reporting about expected credit losses
on loans, securities and other financial assets held by banks, financial
institutions, and other public and private organizations. The exposure draft
proposes a new accounting model intended to require earlier recognition of
credit losses, while also providing additional transparency about credit risk.
The FASB’s proposed model would utilize a single “expected credit
loss” measurement objective for the recognition of credit losses at the
time the financial asset is originated or acquired, replacing the multiple
existing impairment models in GAAP, which generally require that a loss be
“incurred” before it is recognized.
The FASB’s proposed model represents a significant departure from
existing GAAP, and may result in material changes to the Company’s
accounting for financial instruments. The impact of the FASB’s final ASU
to the Company’s financial statements will be assessed when it is issued.
The exposure draft does not contain a proposed effective date; this would be
included in the final ASU, when issued.
Other Potential Amendments to Current Accounting
Standards
The FASB and International Accounting Standards Board, either jointly
or separately, are currently working on several major projects, including
amendments to existing accounting standards governing financial
instruments, leases and consolidation. In particular, as part of the joint
financial instruments project, the FASB has issued a proposed ASU that
would result in significant changes to the guidance for recognition and
measurement of financial instruments, in addition to the proposed
ASU that would change the accounting for credit losses on financial
instruments discussed above. The FASB is also working on a joint project
that would require substantially all leases to be capitalized on the balance
sheet. Additionally, the FASB has issued a proposal on principal-agent
considerations that would change the way the Company needs to evaluate
whether to consolidate VIEs and non-VIE partnerships. The principal-
agent consolidation proposal would require all VIEs, including those that
are investment companies, to be evaluated for consolidation under the
same requirements.
The FASB recently issued a proposed ASU relating to the accounting for
insurance contracts that would include in its scope many contracts currently
accounted for as financial instruments and guarantees, including some
where credit risk rather than insurance risk is the primary risk factor, such
as standby letters of credit and liquidity facilities. Representations and
warranties and indemnifications would also be considered to be insurance
contracts. As a result, the timing of income recognition for insurance
contracts could be changed and certain financial contracts deemed to have
insurance risk, such as catastrophe bonds, could no longer be recorded
at fair value.
All of these projects may have significant impacts for the Company.
Upon completion of the standards, the Company will need to re-evaluate its
accounting and disclosures. However, due to ongoing deliberations of the
standard setters, the Company is currently unable to determine the effect of
future amendments or proposals.