By Denise Lugo
The FASB plans to hold a roundtable in the first quarter next year on credit loss accounting rules to get a handle on challenges public companies faced this year when they applied the new rules, the board said at a recent advisory meeting.
The roundtable is part of the FASB’s Post-Implementation Review (PIR) process, which is designed to address, in a timely manner, issues that arise from adoption of new standards, a FASB spokesperson confirmed on June 30, 2020.
Information gleaned from the discussion will assist the board in determining if any changes need to be made to the standard before private companies and smaller reporting companies (SRCs) adopt it.
FASB staff are currently collecting data from companies’ 10-Q filings, earnings calls, call reports, and holding focused talks with investors and other groups, Board Acting Technical Director Shayne Kuhaneck said at the Financial Accounting Standards Advisory Council’s (FASAC) June 23, 2020, meeting.
“We’re actually conducting a lot of interviews, outreach efforts with investors at this point as people come online for the first year for CECL, so I appreciate the feedback, but I do want to highlight that we are inclusive of all stakeholders,” Kuhaneck said. “We’re having conversations with auditors, we’re having conversations with regulators, and more importantly we’re having conversations with investors, and I would highlight that as part of the CECL trend that we’re on right now,” he said.
The FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326), in 2016 in response to the 2008 financial crisis. The rules were developed to address concerns that the crisis was exacerbated by restrictions in the accounting rules that prevented banks from being able to report credit losses they were expecting in a timely manner. The CECL standard aims to fix those concerns by requiring companies to forecast into the foreseeable future to predict losses over the life of a loan, and then immediately book those losses.
The standard went into effect in 2020 for calendar year-end large public companies, but financial institutions can opt to apply it later under legislative provisions that went into law late March. The rules take effect in 2023 for smaller reporter companies (SRCs), private companies, and not-for-profit organizations that file using U.S. GAAP.
The work via PIR research comes under a recent change in process for reviewing new accounting standards. In May, the Financial Accounting Foundation, the group with oversight responsibility for the FASB, placed the PIR process under the board’s helm to enable a more nimble response to emerging issues stemming from companies’ adoption of new standards.
PIR reviews are also planned for Topic 606, Revenue from Contracts with Customers, and Topic 842, Leases, in tandem with the CECL rules. The leases and revenue standards were recently deferred by one year for privately owned companies and nonprofits. A leases roundtable will be held in the fall.
First Academic Roundtable Planned for This Month
Separately, the FASB will also hold its first academic roundtable in July on CECL, part of steps to engage researchers early, FASB member Christine Botosan told the FASAC.
The roundtable will comprise some FASB members and five academics.
“The point of that roundtable is just to stimulate a conversation about the decisions that were made, the history of the process and the project – decisions that were made and why,” said Botosan, the academic voice on the board.
Starting a discussion early “is also important for academic research because it takes a long time for these projects to get through the process,” she said.
For in-depth analysis of the FASB’s guidance for credit losses, please see Catalyst: US GAAP—Financial Instruments-Impairment, also on Checkpoint.
Additional analysis of the credit loss standard can be found at Accounting and Auditing Update Service[AAUS] No. 2016-29 and SEC Accounting and Reporting Update Service[SARU] No. 2016-34 (July 2016): Special Report: Accounting for Credit Losses on Certain Financial Assets—An Explanation and Analysis of Accounting Standards Update No. 2016-13.
This article originally appeared in the July 1, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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