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September 06, 2017

The federal financial institution regulatory agencies (FED, FDIC, NCUA, and OCC) issued frequently asked questions (FAQs) on the New Accounting Standard on Financial Instruments—Credit Losses 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 agencies’ efforts to support institutions as they prepare to implement CECL. The new FAQ document also includes the questions and answers issued in December 2016.

This new standard, which the FASB published in June 2016, applies to all banks, savings associations, credit unions, and financial institution holding companies (regardless of size) that file regulatory reports for which the reporting requirements conform to the U.S. generally accepted accounting principles. CECL applies to all financial assets carried at amortized cost (including loans held for investment and held-to-maturity debt securities), a lessor’s net investments in leases, and certain off-balance-sheet credit exposures such as loan commitments and standby letters of credit. Although CECL does not apply to available-for-sale debt securities, the new standard modifies the existing accounting for impairment on such securities.

 

The new FAQs address such topics as qualitative factors, data to implement CECL, purchased credit-deteriorated assets, evaluation of the public business entity criteria, mechanics of adopting the standard for Call Report purposes, and collateral-dependent loans. The FAQs continue to emphasize that CECL is scalable to institutions of all sizes; community institutions are not expected to need to adopt complex modeling techniques to implement the new accounting standard. Additionally, institutions are not required to engage third-party service providers to assist management in estimating credit-loss allowances under CECL. The agencies expect institutions to make good faith efforts to implement the new accounting standard in a sound and reasonable manner. The new standard will take effect in 2020 or 2021, depending on an institution’s characteristics. 

 

Related Links

Notification on the FAQs (PDF)

FAQs (PDF)

Keywords: Americas, United States of America, Banking, Accounting, CECL, FAQ, US Agencies

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