The Financial Accounting Standards Board has decided to extend through May 31 the comment period for its proposal to require a more forward-looking approach to reflecting credit losses in financial statements.

FASB said its stakeholders are asking for more time to comment on the proposal so they can consider it side-by-side with a different approach to credit losses proposed by the International Accounting Standards Board. The IASB just published its proposal on March 7, and FASB's comment period for its proposal originally ended April 30, producing less than 60 days of overlap in their exposure and comment periods. FASB also wants to give commenters time to study its “frequently asked questions” document, which the staff published recently in response to initial feedback to its proposal.

“Given our strong desire for a converged standard, the FASB encourages stakeholders to also consider the proposal issued by the IASB, which differs in some respects,” said FASB Chairman Leslie Seidman in a statement. She describes the credit loss proposal as an important issue and invites views on an appropriate path forward.

The proposals put forth by FASB and IASB differ primarily in how they expect companies to project expected credit losses and warn investors of shortfalls. Analysts and the banking community generally favor moving away from the current approach, which allows companies to  recognize losses only as they actually occur.

FASB and IASB initially worked on the project jointly and developed an approach where loans would be divided into three categories according to their performance or expected performance and marked accordingly. FASB became concerned, however, that financial institutions would have trouble determining when loans would move in and out of each of the three categories. IASB retained the approach in its proposal, but FASB instead proposed an approach that would require companies to estimate expected losses upfront and book them immediately.

FASB doesn't normally publish FAQs in connection with an outstanding proposal, but did so in the case of the credit loss proposal to address what it described as confusion over the objective of the project and the board's rationale for its chosen approach. The objective is to set accounting standard for the sake of investors and other users of financial statements, not to facilitate banking regulatory requirements, FASB says. The board also acknowledges criticism of its expected loss approach as “front loading” of possible future losses because it requires entities to consider the loss of likelihood and book some measure of expected loss at inception, even when a given loan is performing. FASB offers nearly a dozen conceptual and practical reasons why the approach is valid.