The Financial Accounting Standards Board (FASB) has issued a Staff Q & A addressing issues related to the weighted average remaining maturity (WARM) method for estimating the allowance for credit losses as required in Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The 2016 credit losses standard requires organizations to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts with the intent to present an estimate of the net amount expected to be collected on the financial assets.
The standard does not require a specific credit loss method; however, it allows organizations to use judgment in determining the relevant information and estimation methods that are appropriate in their circumstances.
The Q & A states that the WARM method is one of many approaches to estimate an allowance for credit losses and provides examples of its use.