FASB change helps banks adjust to credit loss standard

August 24 2018

Published: AccountingToday

The Financial Accounting Standards Board’s proposed changes to the credit loss standard promise to help private banks and credit unions deal with the transition on a more comfortable timeline.

FASB released a proposed accounting standards update this week to amend the transition requirements and scope of the credit losses standard (see FASB proposes to tweak CECL standard). One of the changes involves a timing problem for when the current expected credit loss, or CECL, standard takes effect. Private banks and credit unions have been complaining about a problem with the effective date of the standard, which comes at an awkward time of year. FASB voted to propose the change late last month (see FASB adjusts CECL deadline for private banks).

The proposal would mitigate some of the complexity of the transition by requiring entities other than public companies to implement it for fiscal years starting after Dec. 15, 2021, including interim periods within those fiscal years. That change would align the implementation date for their annual financial statements with the implementation date for their interim financial statements. Publicly traded companies that are SEC filers are supposed to implement the standard for fiscal years beginning after Dec. 15, 2019, and for public companies that aren’t SEC filers after Dec. 15, 2020.

“I think that’s going to be really helpful for both the preparers — the banks themselves — as well as for investors, because it just helps with consistency,” said Mike Lundberg, a partner and national director of financial institutions at the accounting firm RSM. “As the implementation adoption date was originally written, a bank would have to file their quarterly regulatory reporting under the old rules. For the first three quarters, they would file their call reports with the banking agencies for March, June and September under the current rules. Then October 1, they would have had to reverse all of that accounting for the first nine months, the first three quarters, adopted the rule change — the new CECL standard — as of January 1, and then redone their loss reserve accounting for the year to implement it for the end of the year. That transition was going to be just a little counterintuitive and cumbersome for them. Now there will be a cleaner transition, so that all of the year will be under the same accounting requirements.”

The change will also give private banks and credit unions more time to adjust to the credit loss standard than publicly traded companies, just as they do with FASB’s revenue recognition and lease accounting standards.

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