US Agencies (FED, FDIC, NCUA, and OCC) issued frequently asked questions (FAQs) on the new accounting standard for credit losses, in an effort to assist institutions and examiners. The FAQs focus on the application of the current expected credit losses methodology (CECL) for estimating credit loss allowances and related supervisory expectations and regulatory reporting guidance. The periodic issuance and updating of the FAQs is part of the efforts by the US Agencies to support institutions as they prepare to implement CECL.
The FAQ document also includes the questions and answers issued in September 2017 and December 2016. US Agencies published nine additional questions, updated responses to four existing questions, and added an appendix with links to relevant resources that are available to banks for help with the implementation of CECL. The nine additional FAQs cover the following topics:
- Consideration of stress testing models, scenarios, and forecast periods when forecasting future economic conditions for CECL
- Accounting implementation issues related to expected future changes in collateral when using the collateral-dependent practical expedient and related to the borrower payment behaviors as a risk characteristic for credit card portfolios
- Internal control considerations for CECL implementation
- Clarification of US Agencies’ use of the term “smaller and less complex” related to the scalability of CECL
- Concepts in existing interagency policy statements related to the allowance for loan and lease losses that remain relevant
The four updated responses pertain to the existing questions 4, 18, 34, and 35. The updated responses reflect the new effective date for nonpublic business entities as announced in the FASB Accounting Standard Update 2018-19, titled “Codification Improvements to Topic 326, Financial Instruments—Credit Losses” and issued in November 2018; the updated responses also reflect the final rule that modifies regulatory capital rules. The new standard takes effect in 2020, 2021, or 2022, depending on the characteristics of an institution.
Keywords: Americas, US, Banking, Accounting, CECL, IFRS 9, FAQ, Credit Risk, Financial Instruments, US Agencies
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