April 07, 2022

FASB declines to allow early TDR elimination for CECL non-adopters

bank statementThe Financial Accounting Standards Board (FASB) Wednesday met to discuss the elimination of troubled debt restructuring (TDR) account guidance. The Board unanimously voted not to add a project to their agenda that would consider providing a practical expedient to provide all entities with an option to not apply the TDR recognition and measurement guidance within Subtopic 310-40 or otherwise provide a limitation on the lookback period for prior modifications in determining whether a delay in payment is insignificant.

The discussion was held in response to numerous requests, including a request from NAFCU, urging the FASB to allow early adoption of TDR elimination for entities regardless of whether or not they have implemented CECL; however, the Board voted to make early adoption only available to entities that have implemented CECL. The association has also called on the FASB to eliminate the adoption of CECL, citing major credit union concerns with the accounting standard. 

The FASB recently issued an Accounting Standards Update (ASU) eliminating the accounting guidance for TDRs by creditors that have adopted CECL while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty, with an effective date of Dec. 15, 2022 and the option for early adoption.

Of note, TDR elimination will eventually be available to both credit unions who have and have not yet adopted CECL. According to NAFCU Regulatory Counsel James Akin, the elimination of TDR accounting guidance should “provide welcome relief to credit unions that have dealt with the relatively low impact of TDRs on allowances for credit losses and the outsized burden imposed by high preparer costs.” NAFCU members looking for guidance on when they will be able eliminate TDR accounting can access a relevant insight post on NAFCU’s Compliance, Risk, & BSA Network, CFO’s Network; and ONES + CFPB Supervision Network.

NAFCU continues to engage the FASB as the effective elimination date of TDR accounting guidance approaches to ensure credit unions are prepared for the transition.