On Dec. 27, 2020, the Consolidated Appropriations Act (CAA), 2021 was signed into law; which broadly addresses additional COVID-19 responses and relief. Included among those relief provisions are certain extensions to elements of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) that address the application of U.S. Generally Accepted Accounting Principles (GAAP) by financial institutions. The provisions extending the relief are found in two sections within the CAA’s Division N, Additional Coronavirus Response and Relief, title V (Banking), subtitle C (Miscellaneous).
Section 540 “Extensions of Temporary Relief and Emergency Authorities” amended Section 4014 of the CARES Act and further delays the required adoption of the FASB’s Accounting Standards Codification (ASC) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), including the current expected credit loss (CECL) model, by insured depository institutions, credit unions and bank holding companies. Those entities that have not previously adopted and were preparing to adopt on Dec. 31, 2020, now have until the earlier of a) the first day of the financial institution’s fiscal year that begins after the date on which the national COVID-19 emergency terminates or b) Jan. 1, 2022 to adopt ASU 2016-13. This amendment gives financial institutions effectively another year of deferral (for calendar year end entities), which can now adopt for 2022 (i.e., Jan. 1, 2022).
Section 541 “Extension of Temporary Relief from Troubled Debt Restructurings and Insurer Clarification” also extends the period established by Section 4013 of the CARES Act under which consideration of troubled debt restructuring (TDR) identification and accounting triggered by effects of the COVID-19 epidemic are suspended. That period is extended to the earlier of a) Jan. 1, 2022, or b) the date that is 60 days after the date on which the national COVID-19 emergency terminates. In addition, Section 541 amended the relief to expand beyond financial institutions to include insurance companies. The requirement that the subject specific loans not be more that 30 days past due as of Dec. 31, 2019 was unchanged.
The amendment to Section 4013 of the CARES Act remains important to financial institutions as they continue to evaluate loan modifications due to COVID 19 and apply accounting elections for loan modification made under Section 4013 in 2021. Keep in mind on April 7, 2020 a group of banking agencies issued an interagency statement providing guidance for evaluating whether loan modifications due to the COVID-19 pandemic are classified as TDRs. This interagency statement did not include expiration provisions similar to those described in section 541 of the CAA. Financial institutions need to ensure they are properly designating whether or not the modification is occurring under section 4013 of the CARES Act or under the interagency guidance.
Please contact your Baker Tilly advisor for additional information or clarification related to the CAA and the provisions therein.