June 10, 2019

FASB proceeds with proposed CECL update

CECLThe Financial Accounting Standards Board (FASB) moved forward last week with a proposed accounting standards update to its current expected credit loss (CECL) standard. The provisions are technical in nature; the update will be open for comment for 30 days after the proposal is drafted.

Changes within the update related to effective dates and transition requirements are meant to align with CECL and would permit early adoption.

The board also made decisions on the following issues, which were raised by stakeholders:

  • Negative allowances on purchased financial assets with credit deterioration (PCD): the board voted to permit the use of negative allowances for PCDs – while limiting allowances on assets to its amortized cost – to accommodate for existing accounting practices and regulatory charge-off requirements.
  • Negative allowances on available-for-sale debt securities: the board voted to retain existing guidance that prohibits entities from recording negative allowances for available for sale debt securities. FASB does not expect this to create “pervasive” issues with respect to current charge-off practices.

In addition, FASB approved several miscellaneous technical improvements related to trouble debt restructurings, accrued interest receivables and clarifications to the collateral maintenance practical expedient.

During open discussion, FASB also indicated that it would present research related to how it establishes effective dates for different types of business entities, such as non SEC-filers and small public companies. The staff plans to provide its results and analysis for discussion at its July 17th Board meeting. In the interim, FASB expects to discuss this project with the CECL Transition Resource Group and Private Company Council.

NAFCU has devoted considerable time and resources to educate credit unions on CECL requirements and to obtain relief for the industry. In addition to working with FASB directly, the association has also shared concerns with lawmakers, the NCUA and Federal Reserve.

For an update on CECL and other legislative and regulatory efforts, NAFCU member credit unions are encouraged to join the association's Q2 Member Call-In Wednesday.