November 10, 2015

FASB: December 2019 effective date for credit-loss standard

The Financial Accounting Standards Board decided yesterday that its accounting standard for the timely reporting of credit losses will take effect for fiscal years beginning after Dec. 15, 2019, for non-public entities such as credit unions.

The board also voted to allow early application of the standard for fiscal years beginning after Dec. 15, 2018, which is the implementation date for public business entities that file with the Securities and Exchange Commission. FASB is expected to finalize its credit losses project during the first quarter of 2016.

FASB's proposed accounting standard would establish a "current expected credit loss" (CECL) model for the reporting of credit losses by financial institutions.

Under this model, the allowance for loan and lease losses (ALLL) would reflect the credit union's current estimate of the contractual cash flows that it doesn't expect to collect, based on its assessment of credit risk as of the reporting date. This would replace the current "incurred loss" model, which doesn't require recognition of the credit loss until the loss is probable or has been incurred.

NAFCU has repeatedly expressed apprehension about the proposed standard. In a May 2013 official comment letter to FASB, NAFCU said the proposal would "have a uniquely negative impact on the credit union industry. As member-owned cooperatives that are not publicly traded, credit unions should not be subject to this rule."

In August, NAFCU staff and credit union representatives received a briefing from FASB staff on the proposed standard and were given the opportunity to raise their concerns.