The Financial Accounting Standards Board (FASB) voted Wednesday to proceed with its current expected credit loss (CECL) proposal, which it expects to publish in June. The board deferred the original effective date for one year for entities such as credit unions, making it effective for annual periods beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.
The deferred implementation date was requested by CUNA in its 2013 comment letter to FASB, where it asked that the standard’s effective date be at least three years from the issuance of the final standard.
The standard will use an “expected loss” measurement for the recognition of credit losses, which replaces the various existing impairment models in U.S. generally accepted accounting principles that generally use an “incurred loss” approach.
As originally proposed, the standard would have required complicated modeling to determine credit losses. However, revisions announced earlier this month make the proposal more flexible, allowing smaller, community-based financial institutions to evaluate and adjust their loan-loss amounts using qualitative factors, historical losses and current systems. This will allow credit unions to scale the standard, allowing them to avoid the use of complex modeling systems.
Other revisions state that there is no one methodology that has to be used, and that FASB’s intention is that each institution apply the method that is appropriate for its portfolio based on the knowledge of their businesses and processes.
Overall, CUNA wrote eight total comment letters to FASB, as well as to agencies such as the NCUA and members of Congress to achieve improvements to the proposal for credit unions.
Two CUNA members also serve on FASB’s CECL transition resource group, which will continue its work after the final standard is issued. They are Susan Hannigan, senior vice president/chief financial officer at Jeanne D’Arc CU, Lowell, Mass., and Doug Wright, chief financial officer at Mission FCU, San Diego.