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FASB kicks off massive educational outreach to community banks, credit unions on credit loss rules

The Financial Accounting Standards Board (FASB) on Oct. 21, 2019, announced a series of conference workshops it plans to hold this year to help community banks and credit unions implement accounting provisions for credit losses on loans, changes banking groups and U.S. legislators worry could discourage lending.

The workshops will focus on credit loss reserve estimation techniques, including the weighted average remaining maturity (WARM) method; answers to frequently asked questions and other common implementation issues banks may face, the board announcement states.

“The FASB is committed to ensuring community banks, credit unions and lending institutions of all sizes can successfully implement the credit losses standard,” FASB Chairman Russell Golden said. “To support their success, FASB staff experts are taking our Current Expected Credit Losses (CECL) Implementation Workshops to conferences and other gatherings of these institutions throughout the United States. It’s yet another way we’re promoting a smooth transition to the standard for all.”

FASB staff will hold 90-120 minute interactive sessions as follows:

  • at the American Institute of Certified Public Accountants (AICPA) Conference on Credit Unions, in Nashville, Tennessee, on Oct. 22;
  • at the California and Nevada Credit Union Leagues—REACH 2019, in Monterey, California, on Oct. 28;
  • at the Federal Reserve Bank of Philadelphia—CFO/CPA roundtable, in Philadelphia, Pennsylvania, on Nov. 19; and
  • FASB CECL Forecasting Webinar—Credit Union National Association (CUNA), on Dec. 19.

Recently, FASB staff also held similar workshops at the 2019 CUNA CECL School on Sept. 6, in Tempe, Arizona; and, at the AICPA National Conference on Banking and Savings Institutions on Sept. 9, in Washington, DC.

Topics Covered in Two Staff Q&As

The topics that are being featured during the workshops were also addressed in two staff documents issued this year: FASB Staff Q&A—Topic 326, No. 1: Whether the Weighted-Average Remaining Maturity Method Is an Acceptable Method to Estimate Expected Credit Losses, issued in January, and FASB Staff Q&A—Topic 326, No. 2: Developing an Estimate of Expected Credit Losses on Financial Assets, issued in July.

The FASB issued the Q&As to help companies with technical issues arising from implementing Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The rules take effect January 2020 for large public companies, but smaller companies have been allowed more time.

ASU No. 2016-13 introduces a CECL model for estimating loan losses. The guidance requires the provisioning for expected credit losses from the time a loan is originated, rather than await triggering events signaling imminent losses. The CECL standard was issued in response to the 2007-2008 financial meltdown, which resulted in the near systemic collapse of the banking sector. This was blamed in part on accounting rules that resulted in the recognition of credit losses that were widely regarded as "too little, too late."

Partnering with state bank supervisors next year

Over the past year some banking groups and U.S. legislators have been pushing the board to indefinitely defer the standard until more study of its economic impacts on banks can be assessed. Banking groups have argued that the requirement that banks book loan losses up front would discourage lending.

The workshops, including some the board plans for next year might help allay those fears – much of which FASB has adamantly said comes from misinformation about the guidance.

The FASB said it will collaborate with the Conference of State Bank Supervisors (CSBS) to hold workshops in 2020 in participating states based on each state’s training needs.

CSBS is the nationwide organization of financial regulators from all 50 states, plus U.S. territories. The board will announce the venues for those events in the coming months, the announcement states.

For more information on this topic, or to learn how Baker Tilly accounting and assurance specialists can help, contact our team.

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