When did Christian Brothers Automotive adopt Accounting Standards Update (ASU) No. 2016-13?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
Notes to Consolidated Financial Statements December 31, 2023 and 2022
Accounting Standards Recently Adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The ASU introduces a new credit loss methodology, Current Expected Credit Losses (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU. The CECL methodology utilizes a lifetime "expected credit loss" measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. On January 1, 2023, the Company adopted the ASU modified retrospective. There was no adjustment to retained earnings upon adoption.
The Company recognizes an allowance for credit losses for trade and other receivables to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of past events and historical loss experience, current events and future events based on our expectation as of the balance sheet date. Receivables are written off when the Company determines that such receivables are deemed uncollectible. The Company pools its receivables based on similar risk characteristics in estimating its expected credit losses. In situations where a receivable does not share the same risk characteristics with other receivables, the Company measures those receivables individually. The Company also continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change.
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to the 2025 Christian Brothers Automotive Franchise Disclosure Document, Christian Brothers Automotive adopted Accounting Standards Update (ASU) No. 2016-13 on January 1, 2023. This update, also known as Financial Instruments—Credit Losses (Topic 326), introduces a new credit loss methodology called Current Expected Credit Losses (CECL).
The CECL methodology requires earlier recognition of credit losses and provides additional transparency about credit risk. It utilizes a lifetime "expected credit loss" measurement for recognizing credit losses when a financial asset is originated or acquired. These expected credit losses are adjusted each period to reflect changes in expected lifetime credit losses.
This new methodology replaces the previous GAAP impairment methods, which typically required a loss to be incurred before it was recognized. Upon adopting ASU, Christian Brothers Automotive did not make any adjustments to retained earnings. The company recognizes an allowance for credit losses for trade and other receivables, basing this allowance on expected credit losses over the life of the asset, considering past events, historical loss experience, current events, and future expectations. Receivables are written off when deemed uncollectible, and receivables are pooled based on similar risk characteristics for estimating expected credit losses.