AICPA and Credit Union Advocate Seek New Credit Loss Standard Effective Date

June 20, 2018

Despite non-public entities already receiving an extra year to comply with the Financial Accounting Standards Board’s (“FASB”) new credit loss standard, the American Institute of Certified Public Accountants (“AICPA”) and the Credit Union National Association (“CUNA”) seek another extension. Both organizations want the FASB to amend the effective date of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as well as give privately held banks and credit unions until January 1, 2022, to implement the guidance.

Non-public businesses like private community banks and credit unions must apply the new standard to annual financial statements in 2021, which is one year after publicly traded banks must comply. The AICPA and CUNA, however, argue that the way the transition guidance is worded makes it unlikely that smaller banks will have enough time to comply with the standard as intended. CUNA senior director of advocacy and counsel Luke Martone says he does not believe the FASB meant for this confusion to occur, as the board appropriately designed the standard to have a phased transition for large financial institutions, small community banks and privately held businesses.

Additionally, the AICPA stated that the wording in the effective date guidance under FASB Accounting Standards Codification 326-10-65-1a, Financial Instruments—Credit Losses — Overall — Transition and Open Effective Date Information, will cause non-public businesses to apply ASU No. 2016-13 for quarterly financial results through 2021. As a result, those entities will need to revise their financial results during the first three quarters of 2021 when reporting the year-end results. The quarterly updates, according to the AICPA, will help the entities produce the information required by ASU No. 2016-13.

Slightly mirroring Martone’s comments, AICPA staff liaison Jason Brodmerkel said he does not think the FASB intended to create additional interim work. Brodmerkel and the AICPA suggest a straightforward effective date of ASU No. 2016-13 that would mitigate confusion, provide non-public entities with additional preparation, and make life easier for the FASB.

Separate comment letters from the AICPA and CUNA requesting an extension on the credit loss standard’s effective date were sent in April and May. The FASB failed to comment on the organizations’ requests, as it usually does not publicly respond to single comment letters.

ASU No. 2016-13 is considered the FASB’s most significant response to the 2008 global financial crash. The standard, which is often called “current expected credit loss” (i.e., CECL), requires banks and other companies to recognize any potential losses that could occur during the life of a loan, trade receivable, or security.