With financial regulators preparing for the new Current Expected Credit Losses methodology as its implementation draws closer, the Financial Accounting Standards Board issued an updated document addressing frequently asked questions on the new accounting standards update. The new accounting standard introduces the CECL methodology for estimating allowances for credit losses.
Under existing accounting standards, loan losses have to be recognized when they become “probable,” but under the CECL standards, credit unions and banks will have to account for expected losses.
Despite the importance of this change, regulators have been hesitant to assist credit unions with an accounting matter.
“This new approach is more forward-looking since it effectively requires financial institutions to base projections of losses on past lending history and to reflect these changes in their ALLL calculations,” said Henry Meier, New York Credit Union Association SVP/general counsel.
The 43-page FAQ document was issued by NCUA, the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC. The questions addressed a variety of issues, including effective dates, methods, qualitative factors, third-party vendors and more. Question No. 45 is good news for credit unions in that regulators stressed that CECL is scalable to all institutions, and that they anticipate a wide variety of methods used to implement its requirements, which may be as simple as an institution’s updated spreadsheets.
Meier was pleased with the updated FAQs issued by federal regulators. “I have consistently stressed to credit unions that if the standard is implemented properly, smaller credit unions should not find the new standard overly burdensome,” he said.
As previously reported, NCUA will host a complimentary webinar on Thursday, April 11, at 2 p.m. that will focus on CECL, which has been outlined as one of NCUA’s 2019 primary areas of supervisory focus.