September 9, 2019
Published: Accounting Today
The American Institute of CPAs has released a practice aid to help auditors with the allowance for credit losses under the Financial Accounting Standards Board’s new standard for measuring credit losses on financial statements.
The practice aid, Allowance for Credit Losses — Audit Considerations, focuses on loans measured at amortized cost for depository and lending institutions and insurance companies. It provides non-authoritative guidance to help auditors communicate with management and audit committees about the new FASB standard, often referred to as CECL because it uses a Current Expected Credit Loss model. The document is available to the public at no charge.
FASB recently proposed to delay the effective date of the CECL standard, along with several other new standards, for private companies, small public companies and nonprofits, because of the difficulties that many organizations have encountered in implementing them (see FASB issues proposal to delay new standards).
“This practice aid is intended to provide auditors with information that may help them improve the effectiveness and efficiency of their audits and practices,” said Jason T. Brodmerkel, senior technical manager of accounting standards at the AICPA, in a statement. “It is based on existing professional literature, the experience of members of the AICPA Depository Institutions Expert Panel, the AICPA Insurance Expert Panel, and information from AICPA member firms.”
The practice aid summarizes some of the main provisions of the standard and explains the most important considerations when auditing the allowance for credit losses related to loans under the standard. They include getting a better understanding of the entity, assessing the risks, identifying the controls relevant to the audit, designing an audit response, performing audit procedures, and evaluating the audit and disclosure considerations.
The practice aid is part of a wider AICPA initiative to provide guidance on the CECL standard and will be included in an upcoming Credit Losses A&A Guide that’s expected to be released next year.