Financial Perspectives: Proposal for Amending the Transition Requirements of CECL

On August 20, 2018, the Financial Accounting Standards Board (FASB) released an exposure draft proposing an amendment for the transition requirements of the current expected credit losses standard (Topic 326, Financial Instruments – Credit Losses).

The standard, also commonly known as CECL, is considered by many to be FASBs most important work to emerge from the 2008 financial crisis.

Currently the implementation process is as follows: * SEC filers — typically, larger financial institutions — must comply with ASU No. 2016-13 for fiscal years beginning after December 15, 2019. For calendar year-end banks, this generally means a January 1, 2020, effective date.

* For public business entities that are not SEC filers, the new standard is effective for fiscal years beginning after December 15, 2020, including interim period within those fiscal years. For calendar year-end banks, this means a January 1, 2021, effective date, with quarterly reporting coinciding with the first quarter of 2021.

* For banks that are not SEC filers and are not public business entities — typically, credit unions and community banks — the standard is effective for fiscal years beginning after December 15, 2020, but these smaller institutions do not have to comply with quarterly filing requirements until periods beginning after December 15, 2021.

However, the transition and effective date requirements of the standard require both non-SEC filer public business entities and nonpublic business entities to adjust retained earnings for the cumulative effect of the accounting changes as of January 1, 2021, for calendar year-end entities.

This proposal is asking to amend the transition guidance for the nonpublic business entities and have them follow the accounting standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Once approved, community banks and credit unions will then adopt the standard and adjust their opening retained earning balance as of January 1, 2022, assuming they report on a calendar-year basis.

Click here to view the proposed amended ASU.

Contributed by Angela Murdo, CPA, CFE, Shareholder