The FinancialAccounting Standards Board voted to make updates to its credit impairment modelthat will offer exemptions and carve outs for nonprofits and non-SEC filers. FASBalso voted during its April 27 meeting to move the effective date of implementation.
The currentexpected credit loss model, also called CECL, is in its final stages of deliberation.At the meeting, the board debated whether credit-quality disclosures organized byyear of origination — called vintages — were applicable to users of the financialstatements at certain community banks and credit unions. The contention was thatthis disclosure is often helpful to institutional investors, but smaller financialinstitutions do not have many or any institutional investors. Companies must reportvintages for five annual reporting periods.
A majorityof the board voted to give nonpublic or other-than-public business entities "optionalrelief," in Chair Russell Golden's words, exempting them from the requirementof reporting the vintages but permitting them to do so if they would like. A majorityof the board also voted to give public business entities that are not SEC filersa build-up process to full compliance of the disclosure. When it goes into effectin 2021, these companies would disclose remaining loan amounts that were originatedin 2021, 2020 and 2019, with everything prior included in the aggregate, said FASBspokesperson Christine Klimek in an email. In each incremental year, they woulddisclose an additional year until they are aligned with SEC filers; by 2023, theirdisclosures will be aligned with SEC filers.
A companycould also choose full compliance in the first year of implementation. Golden recommendedto the staff that this change be included in the transition paragraph of the rule.A press release issued after the meeting called the changes "practical andtransitional relief."
The boardunanimously voted to delay CECL implementation by a year from the dates decidedon in a November 2015vote. CECL will now be effective for public companies that are SEC filers in thefiscal years beginning after Dec. 15, 2019, including interim periods within thosefiscal years. For nonpublic companies, the effective date is now the fiscal yearsbeginning after Dec. 15, 2020, including interim periods. For privatecompanies, not-for-profit organizations, and employee benefit plans, the standardwill be effective for annual periods beginning after Dec. 15, 2020, and interimperiods within fiscal years beginning after Dec. 15, 2021.
A majorityof board members also decided to allow companies to early adopt the CECL standardas of the November 2015 dates.
, five members of theboard assented to the cost and benefits discussion, and two dissented to aspectsof the discussion that dealt with Day 1 losses.
Followingthis meeting, the staff will complete the "ballot draft" of the AccountingStandards Update of the CECL rule that includes all of the board's decisions. Theboard will review it for accuracy and then submit it for final publication.