What FASB’s Delay of ‘CECL’ Effective Date Means for CUs

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On Oct. 16, the Financial Accounting Standards Board (FASB) affirmed its decision to amend the effective dates for its Accounting Standards Updates (ASU) for Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).

The board decided that the current expected credit losses (CECL) standard will be effective for public business entities (PBEs) that are SEC filers, excluding entities eligible to be smaller reporting companies (SRCs) as currently defined by the SEC, for fiscal years beginning after Dec. 15, 2019 and interim periods within those fiscal years.

For all other entities, including credit unions, the board decided that CECL will be effective for fiscal years beginning after Dec. 15, 2022, including interim periods within those fiscal years, effectively Jan. 1, 2023.

That decision provides additional implementation time and allows credit unions the ability to learn from the implementation processes of larger public entities. Credit unions will have more time to conduct extensive testing to determine the methodology that is most appropriate for their credit union and to adequately prepare for the resulting impact to their reserve requirements.

In addition, National Credit Union Administration (NCUA) Chairman Rodney Hood has said the NCUA has determined that it has the authority to permit federally insured credit unions to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new CECL accounting standard. The California and Nevada Credit Union Leagues and league-member credit unions hope that the NCUA will use this additional time to finalize such a rule.

While the Leagues support the delayed effective date, it maintains the belief that the application of CECL to credit unions is inappropriate. CECL is intended to address delayed recognition of credit losses resulting in insufficient funding of the allowance accounts of certain entities. However, this has not been an issue for credit unions. Furthermore, CECL is designed to provide better evaluations of for-profit public entities. Therefore, the CECL ASU should not apply to credit unions and other non- and not-for-profit entities that are not publicly traded.

The Leagues urge FASB to take advantage of the delayed effective date to reconsider the application of CECL on credit unions and other non- and not-for-profit entities that are not publicly traded.

As a consequential amendment, FASB also decided to align the effective dates of ASU No. 2017-04 — Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment — with the amended Credit Losses effective dates.

Next steps: FASB directed staff to draft a final Accounting Standards Update for vote by written ballot on the proposed amendments regarding the effective dates for CECL, Hedging, and Leases.

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