Accounting Standards Adopted During 2023

9 Months Ended

Sep. 30, 2023

Accounting Changes and Error Corrections [Abstract]

Accounting Standards Adopted During 2023

(11) Accounting Standards Adopted During 2023

On January 1, 2023, the Company adopted ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which updates the manner in which entities assess expected losses from financial instruments exposed to credit risk. While this update has a greater impact on issuers with loans, notes, and credit card receivables, the scope of Topic 326 extends to both financial assets measured at amortized cost as well as available-for-sale debt securities. As such, trade receivables are subject to the Topic’s provisions, requiring entities to consider past events, current conditions, and reasonable and supportable forecasts in determining the amount of expected loss over the life of the respective financial instrument. Nanophase uses the loss-rate method in developing its allowance for credit losses, which involves identifying pools of assets with similar risk characteristics, reviewing historical losses within the last three years, and consideration of reasonable and supportable forecasts. Changes in estimates, developing trends, and other new information can have a material impact on future evaluations.

This differs from prior allocation methodologies in that in addition to solely considering an aging schedule for amounts to reserve, management must now also consider current events as well as the future macroeconomic environment when making such loss assessments. On January 1, 2023, the Company applied the accounting change retrospectively with an opening adjustment to retained earnings in the amount of $203.