Proposed Accounting Standards Update: Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities (File Reference No. 2024-ED900)

Dear Mr. Jackson:

We appreciate the opportunity to comment on the proposed Accounting Standards Update ("Update") referenced above. Our comments will be in the form of responses to the specific questions included in the proposed Update.

Questions for respondents

Question 1: Should the amendments in this proposed Update be limited to private companies and not-for-profit entities, excluding not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market? Should the proposed amendments be expanded to include public business entities, all not-for-profit entities, or other types of entities? Please explain your reasoning.

We believe that the amendments in the proposed Update should be limited to private companies and all not-for-profit entities as we believe the proposed amendments will reduce overall costs and complexity for these entities without reducing decision-useful information provided to their financial statement users. Specifically as it relates to not-for-profit entities, we believe that not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market should be included in the scope of the proposed amendments as we believe that these entities are more similar to private companies than public business entities in terms of accounting and financial reporting resources and the fact that the proposed amendments typically would not have a material effect on their estimates of expected credit losses for current accounts receivables and current contract assets. Regarding public business entities, we do not believe that the amendments in the proposed Update should be expanded to public business entities as they generally have the resources necessary to address the complexities in the existing guidance and as noted in the Update's Background Information and Basis for Conclusions, public business entities have not expressed concerns about significant costs or complexity associated with estimating expected credit losses for current accounts receivable and current contract assets.

Question 2: Should the proposed amendments apply to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606?

Yes, we believe that the proposed amendments should apply to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606 as our experience has been that the proposed amendments would typically not have a material effect on the estimate of expected credit losses for current accounts receivables and current contract assets, and therefore, would not reduce decision-useful information provided to financial statement users.

Question 3: Should the proposed amendments be extended to other assets or transactions and, if so, which ones and why? For example, should the proposed amendments apply to the initial estimate of expected credit losses on current accounts receivable and current contract assets acquired in a business combination accounted for under Topic 805, Business Combinations? Should the proposed amendments apply to transactions accounted for under Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and, if so, what specific assets?

We believe that the proposed amendments should be extended to the initial estimate of expected credit losses on current accounts receivable and current contract assets acquired in a business combination accounted for under Topic 805, Business Combinations and Topic 958-805, Not-for-Profit Entities Business Combinations as we do not believe that the proposed amendments would typically have a material effect on the estimate of expected credit losses for current accounts receivables and current contract assets acquired in such transactions, and therefore, would not reduce decision-useful information provided to financial statement users. In addition, the majority of the entities that would be within the scope of the proposed amendments only issue formal financial statements annually, and therefore, would typically have a longer collection period (i.e. from the date of acquisition to the date that the financial statements are available to be issued) from which to benefit as it relates to such transactions.

Question 4: Will the proposed practical expedient improve the ability for entities to apply Topic 326 for current accounts receivable and current contract assets? Is it clear and operable? If not, what changes would you suggest?

Yes, we believe that the proposed practical expedient is clear and operable and will improve the ability for entities to apply Topic 326 for current accounts receivable and current contract assets as it simplifies the Topic's application (e.g. eliminating the requirement that reporting entities identify and analyze changes in relevant economic data) without reducing decision-useful information provided to financial statement users.

Question 5: Will the proposed accounting policy election to consider subsequent collection activity improve the ability for entities to apply Topic 326 for current accounts receivable and current contract assets? Is it clear and operable? If not, what changes would you suggest?

Yes, we believe that the proposed accounting policy election is clear and operable and will improve the ability for entities to apply Topic 326 for current accounts receivable and current contract assets as it simplifies the Topic's application (e.g. the ability to utilize actual collections versus estimates of future collections) without reducing decision-useful information provided to financial statement users.

Question 6: Should the proposed accounting policy election to consider subsequent collection activity be limited to entities that have elected the practical expedient? Please explain why or why not.

We believe that the proposed accounting policy election to consider subsequent collection activity should be limited to entities that have elected the practical expedient. Allowing the policy election without also requiring the election of the practical expedient would introduce needless complexity (particularly as it relates to financial statement users' ability to understand which generally accepted accounting principles are being applied and comparability across entities) with little, if any, benefit as electing the policy without the practical expedient typically would not have a material effect on the resulting estimate of expected credit losses for current accounts receivables and current contract assets when compared to the resulting estimate had both the practical expedient and the policy been elected (due to short-term nature of the accounts receivables and contract assets).

Question 7: Should the proposed amendments include a specific requirement for entities to disclose that they are applying the proposed practical expedient and accounting policy election? Please explain why or why not.

Yes, we believe that entities should be required to disclose that they are applying the proposed practical expedient and accounting policy election. As a part of the Private Company Decision-Making Framework and the allowing for the election of accounting alternatives, we believe that it is critical that the election of those alternatives be disclosed to keep financial statement users sufficiently informed about which generally accepted accounting principles are being applied and to allow for comparability across entities. In addition, the proposed disclosures are straight-forward and the costs to implement them should not be significant.

Question 8: Do you agree with the proposed prospective transition requirements? Should entities be able to initially apply the practical expedient and accounting policy election in any period after the effective date without performing a preferability assessment under Topic 250, Accounting Changes and Error Corrections? Please explain why or why not.

Yes, we agree with the proposed prospective transition requirements as we do not believe there is any benefit in allowing for retrospective application. In addition, we believe that entities should be able to apply the practical expedient and accounting policy election in any period after the effective date without performing a preferability assessment under Topic 250, Accounting Changes and Error Corrections. Permitting the election of the practical expedient and the accounting policy in any period after the effective date without performing a preferability assessment allows entities who were unaware of the proposed amendments or who had subsequent changes in their facts and circumstances (e.g. business changes which resulted in significant increases in their accounts receivable and / or contract assets) the flexibility to do so without undue cost and administrative burden.

Question 9: Should the proposed amendments be effective upon issuance of a final Accounting Standards Update? If not, how much time would be needed to implement the proposed amendments? Should early adoption be permitted for financial statements that are not yet available to be issued? Please explain why or why not.

We agree that the proposed prospective amendments should be effective upon issuance of a final Accounting Standards Update as applying the amendments should not be overly difficult for most entities and immediate adoption could be beneficial to some entities, including those whose financial statements are not yet available to be issued.

Question 10: Will the proposed amendments reduce costs without reducing the decision-usefulness of information provided to investors and creditors? Please explain why or why not.

Yes, we believe that the proposed amendments will reduce costs (e.g. the entity personnel time necessary to identify and analyze relevant economic data, the cost of economic data subscription services, etc.) without reducing the decision-usefulness of the information provided to investors and creditors (as explained more fully in our responses to the questions above).

We appreciate the opportunity to provide the above comments and are available for further discussion with the Financial Accounting Standards Board (the "Board") if that would be useful to the process. Should the Board wish to discuss any of our comments, please contact David Johnson, Professional Practice Group Principal, at david.johnson@bakertilly.com or +1 (608) 240 2422.

Sincerely, BAKER TILLY US, LLP

David Johnson, Professional Practice Group Principal