Smaller Banks Receive Extension on Implementing Credit Loss Standard

July 27, 2018

After repeated calls for a delay of its new credit loss standard, the Financial Accounting Standards Board (“FASB”) has agreed to give smaller banks an extra year to comply with Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

FASB chairman Russell Golden said the board had always intended to provide these nonpublic business entities additional time to adopt the ASU, but the language insinuated that financial institutions like credit unions and community banks did not have as much time to prepare as was initially envisioned. Golden acknowledged the confusion smaller banks had in implementing ASU No. 2016-13, stating that the guidance should reflect the FASB’s original intent of the standard’s transition date for those institutions. Smaller banks will have to apply the standard’s guidance starting in 2022, which is one year after larger financial institutions must comply.

The proposed update is expected in the next two months and will have a 30-day comment period.