Proposed Changes Give Credit Unions and Community Banks More Time to Implement Credit Loss Standard

On August 20, 2018, the Financial Accounting Standards Board® (FASB) released proposed Accounting Standards Update (ASU) No. 2018-270 Codification Improvements to Topic 326: Financial Instruments—Credit Losses, to clarify its new current expected credit loss (CECL) standard.

Changes to the FASB’s definition of a public business entity made in 2013 expanded the definition to include institutions that may not be Securities and Exchange Commission (SEC) filers. The proposed ASU gives nonpublic business entity (non-PBE) community banks and credit unions additional time to comply with the standard compared to public institutions.

This was the FASB’s original intent for the new guidance, and the proposed change has resulted from stakeholder concerns about the implementation timing as written within the original standard. Additional clarification on operating lease receivables are also included in the ASU. The 30-day comment period on the proposed updates end September 19, 2018.


CECL provides a fundamental change to how financial institutions recognize credit losses within the loan portfolio. The standard requires financial institutions to analyze the current conditions and the financial future, and consider all reasonable and supportable forecasts to reserve credit losses for the life of loans, trade receivables, or debt securities in question.

Institutions should consider past experiences, future estimates, and current trends in the economy, using their best judgment to record a loss provision. These loss reserves will be closely followed by investors, regulators, and other users because they’re a leading indicator of future problems in the institution’s credit quality—and possibly the greater economy as a whole.

Implementation Timing

The proposed update addresses an identified timing concern that occurs when the CECL standard takes effect for non-PBE community banks and credit unions. This proposed change mitigates some of the complexity of CECL transition by better aligning the annual period implementation date with the implementation date for interim financial statements.

Nonpublic Companies

The proposal requires entities—other than public business entities—to implement CECL for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. As originally issued, the standard stated that only non-PBEs must apply the new accounting requirements for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

The transition guidance in the original standard also requires institutions to make what FASB calls a cumulative-effect adjustment to the reported amount. The adjustment applies to retained earnings for the beginning of the first reporting period in which the new accounting standard becomes effective. This means private banks and credit unions would have been forced to adopt the standard at the same time as non-SEC public companies, instead of having the 12-month delay the FASB normally gives to private companies.

Public Business Entities

Public business entities that are SEC filers, which are generally publicly traded companies, are required to implement the standard for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For public business entities that aren’t SEC filers, the new standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Note on Operating Leases

Unrelated to implementation dates, the proposed amendment also clarifies that receivables arising from operating leases aren’t within the scope of CECL. Any impairment of receivables of operating leases should be accounted for in accordance with ASC Topic 842—Leases.

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For more information regarding how the proposed changes could affect you or your business, contact a Moss Adams professional.

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