The Financial Accounting Standards Board has finalized a stop-gap disclosure rule to flesh out more information about the credit quality of financing receivables as it continues to develop a more comprehensive standard on financial instruments.

Accounting Standards Update No. 2010-20, Receivables (Topic 310) calls for more credit risk disclosures to give investors a better view of the credit risk in a company’s portfolio of receivables as well as the adequacy of its allowance for credit losses. Under the update, companies will be required to say more about aging receivables and credit quality indicators in particular.

The new disclosure requirements affect financing receivables and trade accounts receivables, including loans, trade accounts receivable that are greater than a year old, notes receivable, credit cards, and receivables for certain leases. The new disclosure requirement does not affect short-term trade accounts receivable, receivables that are measured at fair value or the lower of cost or fair value, and debt securities.

The update will have the greatest impact on banks that currently measure a large portion of their financing receivables at amortized cost rather than fair value, FASB said. Operating companies with financing receivables that are primarily short-term trade accounts receivable will be less affected.

“In the aftermath of the global economic crisis, FASB is focused on the need for improved accounting standards for financial instruments,” said FASB member Tom Linsmeier in a Webinar FASB is making available on its Website to explain the new requirement. “The main object in developing this standard is to help financial statement users assess credit risk in a company’s receivables portfolio and assess adequacy of allowance for credit losses by expanding credit risk disclosures.”

FASB said in the height of the financial crisis, credit risk was hidden behind a high threshold in existing accounting rules for when companies would be required to recognize credit impairments, or losses in value. FASB’s recent proposal for a broad standard on how to account for financial instruments would remove the existing threshold entirely, the board said. FASB is developing the comprehensive standard as part of its effort to converge U.S. accounting rules with international rules, but it wanted to update disclosures on credit risk more immediately.

For disclosures required as of the end of a reporting period, the update takes effect with fourth-quarter filings for calendar-year companies. As for disclosures focused on activity during a reporting period, those take effect with the opening of the 2011 reporting year for calendar-year companies.

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