FASB to release CECL standards update later this year

While the FASB keeps reviewing CECL (current expected credit loss) standards, financial institutions will have to wait a little longer for the final Accounting Standards Update (ASU). The FASB recently pushed the release date back again, to the end of the first half of 2016.

Russell G. Golden , FASB Chair, noted in a December 2015 presentation, “The credit crisis of 2008 underscored the need for a more forward-looking model—one that gives preparers the opportunity to recognize losses that exist in the loan portfolio, and recognize them up front. Many aspects of the CECL model in its current form were developed in direct response to bank stakeholders, who provided feedback intended to reduce the cost and complexity of implementation.”

Golden contends that the FASB is not asking institutions to change their methods of estimating losses, nor do banks need to look 20 or 30 years into the future. Rather, he says, "We are requiring assumptions only as long as there exists reasonable and supportable data about the future, generally two to three years.”

Regulators expect the transition from current “incurred” loss models to “expected” loss models to be more of a fundamental change than a tweak. While implementation dates are in the future, financial institutions should be begin to prepare for this an implementation timetable that starts in December 2018.

The ABA has published several recommendations for the FASB to consider, including:

  • Either eliminate the “life of loan” concept to CECL or insert language that alleviates the strict life of loan concept
  • Eliminate the required consideration of prepayments within the definition of expected life of a portfolio because it introduces complexity for institutions and their auditors that should not significantly impact the ALLL estimate. Omitting this requirement alleviates many institutions of the burden to consider prepayments within their CECL models
  • Provide five years of transition toward the CECL implementation.

These and other recommendations could be on the docket for the public forum the FASB plans to conduct in February 2016.

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