Banks Urged to Prepare for FASB Credit Loss Standard
Banking institutions are advised to act fast on implementation plans for Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326). At the AICPA National Conference on Banks and Savings Institutions last week, Louis Thompson of the Office of the Comptroller of the Currency told depository institutions to start preparing for the Financial Accounting Standards Board’s (“FASB”) current expected credit loss (“CECL”) standard. Thompson emphasized that due to the substantial changes in writing down bad loans and securities, implementation efforts should require full commitment and cooperation to ensure the new guidance is applied in a disciplined and consistent manner.
Another recommendation for banks is to run parallel tests to compare the new CECL model with their current accounting methods. A panel member at the conference said it is essential for institutions to run parallel tests to identify any deficiencies before having to apply the credit loss standard in financial statements. The panel member also stated that banks should respond to any needed changes because of CECL, complete a GAAP review to identify the impact on processes and operations, and create an implementation road map and a communication plan.
ASU No. 2016-13 is effective for public entities in 2020. Public companies without obligations to file with the Securities and Exchange Commission and private entities and nonprofits must implement the credit loss standard in 2021 for annual reports, and 2022 for quarterly reports. A July survey revealed that two-thirds of banking institutions and credit unions are already preparing for CECL implementation.
Topics: American Institute of Certified Public Accountants "AICPA", Credit Loss Model "CECL", FASB Financial Instruments project, Financial Accounting Standards Board "FASB", Financial Instruments - Credit Losses (Topic 326)