FASB issued a question-and-answer (Q&A) document that addresses particular issues related to the weighted average remaining maturity (WARM) method for estimating the allowance for credit losses. The estimation of the allowance for credit losses is required in the Accounting Standards Update No. 2016-13 titled "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments."
In the Q&A document, FASB staff agrees that the WARM method is one of many methods that could be used to estimate an allowance for credit losses for less complex financial asset pools. The staff also provides examples of how it could be used. The WARM method uses an average annual charge-off rate. Like other loss rate methods that can be used to estimate expected credit losses, consideration of reasonable and supportable forecasts when applying the WARM method can be accomplished in other ways, as illustrated later in this Q&A (See Question #5).
The credit losses standard issued in 2016 requires organizations to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts with the objective of presenting an entity’s estimate of the net amount expected to be collected on the financial assets. The standard does not require a specific credit loss method; however, it allows organizations to use judgment in determining the relevant information and estimation methods that are appropriate in their circumstances. Some stakeholders, including small financial institutions, asked the staff whether it would be acceptable to use the WARM method to estimate expected credit losses. The WARM method uses an average annual charge-off rate as a foundation for estimating the credit losses for the remaining balances (that is, losses occurring through the end of the contractual term) of financial assets in a pool at the balance sheet date.
Keywords: Americas, US, Banking, Accounting, IFRS 9, Credit Losses Standard, Q&A, WARM Method, FASB
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
BoE updated the known issues document for the statistical reporting Forms AS and FV.
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
EBA updated the report on the implementation of selected COVID-19 policies.
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.