FASB sets preliminary CECL effective dates: 2019 for large banks; 2020 for others
Nov 11, 2015
**The FASB issued the final CECL standard on June 16, 2016. For up-to-date information and resources, access the updated CECL Prep Kit. For current implementation deadlines for financial institutions, visit http://www.alll.com/alll-regulations/fasb-cecl/implementation/**
Most U.S. financial institutions would be required to utilize the proposed current expected credit loss model, or CECL, beginning in 2019, although smaller banks would have an additional year to shift from the incurred-loss model, the Financial Accounting Standards Board (FASB) ruled Wednesday. The CECL model will have a major impact on how financial institutions calculate their allowance for loan and lease losses (ALLL).
The final, updated standard on accounting for impairments, expected to be issued in first quarter 2016, is still undergoing tweaks as staff and FASB members discuss issues raised during reviews by accountants, financial institutions and other interested parties. But the vote on effective dates at least provides financial institutions with a better timeline for implementing the sweeping changes to calculating loan-loss reserves. (See the finalized timeline here: http://www.alll.com/alll-regulations/fasb-cecl/implementation/)
Staff members said that the wide variation in the size of public financial institutions warranted distinguishing between small and large institutions when it comes to the effective dates, and board members agreed.
Board members voted for the CECL model to be effective for fiscal years (and their interim periods) beginning after Dec. 15, 2018, for public businesses that meet the definition of a Securities and Exchange Commission filer.
Smaller public entities (non-SEC filers) and all other entities (including private companies, not-for-profits and certain employee benefit plans) would be required to issue financial statements using the new standard beginning with fiscal year reports after Dec. 15, 2019. The not-public business organizations would have an additional year to implement CECL for interim financial statements. (See the finalized timeline here: http://www.alll.com/alll-regulations/fasb-cecl/implementation/)
Some board members discussed creating a more staggered start to the effective dates so that resources required to implement the new standard wouldn’t be as constrained, but in the end, a majority of the board disagreed with that view. They gave tentative permission, however, for organizations to adopt the guidance early for fiscal years beginning after Dec. 15, 2018, and for interim periods in those years.
TDRs: no adjustments
The FASB also agreed to revise its earlier view on troubled debt restructurings (TDRs) under the new standard. Earlier versions of the board’s guidance would have required a financial institution to record a cost-basis adjustment on a loan when a troubled debt restructuring occurred. But a number of industry players reviewing the standard expressed concerns about significant costs and complexity associated with recording and tracking this adjustment. FASB members on Wednesday agreed with a staff recommendation to amend the proposed standard so that TDRs would be measured under the CECL model with no cost-basis adjustments.