FASB Moves toward CECL finalization
May 3, 2016
On Wednesday, April 27th, the Financial Accounting Standards Board (FASB) continued with deliberations on the proposed Accounting Standards Update, Subtopic 825-15, more commonly known as the current expected credit loss (CECL) model.
The standard, originally proposed in December 2012, has seen a number of delays due to the contentious nature of the degree of changes it will require in the industry. Looking to finalize the standard in June, the FASB held a roundtable meeting in February with a number of concerned parties such as the ABA and ICBA, assembled a Transition Resource Group (TRG) in March, and hosted the first meeting of the TRG on April 1st.
The April 27th FASB meeting came with marked progress by the board and signaled to the industry that they are committed to releasing the finalized CECL model in the coming months. The meeting included a review of costs and benefits, revisions to two paragraphs, a change in effective dates and an update to vintage disclosure requirements.
Effective dates pushed back one year
The FASB decided to move effective dates back one year from their previous dates. Additionally, all institutions will be able to adopt the new accounting standard early, for fiscal years beginning after December 15, 2018. The new effective dates:
- For public business entities that meet the definition of an SEC filer, the forthcoming standard will be effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2019.
- For other public business entities, the forthcoming standard will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
- For all other entities, including not-for-profit organizations and employee benefit plans, the forthcoming standard will be effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
- Early adoption will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
FASB.org; Tentative Board Decisions, http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FActionAlertPage&cid=1176168106179
SEC-filing institutions will continue providing vintage disclosures as they do currently. The board decided that non-SEC filing public business entities will be required to take a phase-in transition approach for vintage disclosures. This transition will require disclosure of three origination years, with an incremental year for each following fiscal year until five fiscal years are disclosed. Read more about the phase-in approach to vintage disclosures for non-SEC filing public business entities at FASB.org.
The FASB staff is now drafting a final update to the standard for the board to vote on by written ballot in June. Once finalized it is expected that auditors, regulators and the Transition Resource Group (TRG) will work to further interpret the accounting change and how it will be implemented at institutions. While institutions can expect to have some resources available to them in interpreting the model, the non-prescriptive nature of the standard may mean that institutions will take different approaches to calculation.
Related Asset - Whitepaper:
CECL Data Prep Guide
CECL Data Prep Guide - Download the PDF
Related Asset - Blog
FASB Assembles Transition Resource Group (TRG)
Excerpt Pulled From Blog:
"In a news release on March 22, the FASB announced members of the Transition Resource Group (TRG) for the upcoming CECL standard. Members of the TRG include auditors, users, financial services regulators and financial statement preparers."