board-meetingThe Financial Accounting Standards Board (FASB) met today to discuss the current expected credit loss (CECL) accounting standard and expand on implementation issues brought up in the transition resource group meeting in June. The purpose of the transition resource group is to discuss stakeholders’ issues about CECL, to inform the board of the issues, and to provide a forum for stakeholders to learn about implementation experiences of others.

Issues addressed at the board meeting consisted of recoveries, negative allowance, vintage disclosures, contractual extensions and discounting cash flows when using a method other than a DCF approach. Although a potential extension for SEC filers or public business entities has been a recently contested issue, it was not among the topics discussed at the meeting.

One notable point during the conversation was the conclusion that FASB made about gross write-offs and gross recoveries in vintage disclosures. The board was asked if they believe that the credit quality disclosure requirements should be clarified to require an entity to present gross recoveries and gross write-offs by origination year.

The standard currently does not include language on recoveries and write-offs. It only states that “When disclosing credit quality indicators of financing receivables and net investment in leases (except for reinsurance receivables and funded or unfunded amounts of line-of-credit arrangements, such as credit cards), an entity shall present the amortized cost basis within each credit quality indicator by year of origination (that is, vintage year).”

In the following statement, a member of the FASB staff indicated how the language exclusion is an issue: “One TRG member noted that the credit quality disclosures would become significantly less decision-useful without the gross write-off and recovery information because a financial statement user would not be able to determine whether a change in the amortized cost basis of a particular origination year relates to loans that were paid down or loans that were charged off. Many preparers on the TRG noted that the disclosure requirement would be operationally burdensome because this information is not readily available in their financial reporting systems.”

In response to clarifying CECL’s intent with respect to the vintage disclosure requirement, 4 out of 6 board members agreed that they should make the targeted changes in paragraph 326-20-50-6 to include the words gross write-offs and gross recoveries. Board member, Russell G. Golden, said, “I do believe that we should make the codification agreement. I understand the confusion in practice for the words as written and in the illustrative example. I think we should clarify that confusion based on the staff’s recommendations.”

Golden then proceeded to recommend separating out the codification agreement from the accounting standard, as he viewed it as being different than the other implementation issues discussed at the meeting. Separating out the agreement would allow the board to have a longer comment period, providing more outreach with investors. Because of that, as he mentioned, it may require the use of a separate effective date for this disclosure. All 6 board members voted to put the agreement in a separate exposure draft. The new effective dates for the disclosure component were not mentioned and will likely be decided at a different time.

A recording of the 11/07 FASB board meeting can be found here.


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