Will the FASB Defer the CECL Implementation Date for All Public Companies?
In response to the novel coronavirus (COVID-19) crisis, the implementation deadlines have been deferred for the updated accounting rules on current expected credit losses (CECL), revenue recognition and leases. But those deferrals apply only to certain entities. In particular, the CECL deferral excludes publicly traded insurers, credit card companies and auto lenders. Now these overlooked creditors are asking the Financial Accounting Standards Board (FASB) to extend them the same relief. So far, however, the FASB has responded with only silence.
COVID-19 relief efforts
On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The act gives large public insured depository institutions (including credit unions), bank holding companies and any affiliates the option to temporarily delay measuring credit losses on financial instruments under the CECL methodology. The delay lasts until year end or until the national emergency declaration for COVID-19 is lifted, whichever comes first.
But the CARES Act ignores nonfinancial companies and some finance companies, including credit card companies and auto lenders. As a result, those companies still must apply the CECL standard as of January 1, 2020, if they are a large public calendar year-end company.
Requests for additional relief
In November 2019, the FASB gave a subset of companies — smaller reporting companies (SRCs) as defined by the Securities and Exchange Commission (SEC), private companies and not-for-profit entities — until 2023 to adopt the CECL rules. Though large public companies didn’t get a CECL deferral from the FASB, it has been conducting webinars and other educational outreach to help companies understand how to adopt the changes. And now big banks have the CARES Act deferral
Not surprisingly, the entities that were overlooked in the CARES Act are asking the FASB to codify a delay that would extend to all public companies. Mike Monahan, senior director of accounting policy at The American Council of Life Insurers, hopes the FASB will pick up the request to codify the CARES Act deferral for the insurance sector early this summer.
“These are extraordinary times and the reason that we ask [the] FASB to grant us at least one more year is because when you’re going through an implementation, it’s very difficult to do that remotely. You need programmers, consultants, you need everybody collaborating, and we had very little runway to begin with and this pandemic just pushed everybody out of the offices,” said Monahan. He believes all financial institutions should operate on the same playing field.
The Independent Community Bankers of America (ICBA) has sent the FASB a separate request to delay the CECL standard. In an April 23 letter, the ICBA asked the FASB to delay the CECL standard from 2023 to 2025 for all banks, big and small.
“By further extending implementation of CECL an additional two years,” said Rebeca Romero Rainey, president and CEO of the ICBA, “the domestic financial system will be able to better focus its attention on the economic reality of today instead of concerning themselves with how their decisions will be reported in the financial statements under a CECL impairment framework…It is clear to us that strict adherence to [Generally Accepted Accounting Principles] is not always in the best interests of our economy, particularly when the country is faced with an unprecedented viral pandemic.”
As of this writing, the FASB hasn’t shown any interest in further delaying CECL for any large public company. In fact, the FASB vehemently lobbied Congress to remove the CECL deferral provisions from the CARES Act.
But these are uncertain times, and the FASB may feel pressure from stakeholders to provide additional relief to help companies during the COVID-19 pandemic. Contact your CPA for the latest developments on this issue or to help implement the new CECL model.
SIDEBAR: Options to Delay Revenue Recognition and Lease Rules
On May 20, the Financial Accounting Standards Board (FASB) approved one-year deferrals of the updated revenue recognition and lease standards for certain entities. Specifically, the FASB gave all nonpublic entities that have not yet issued their financial statements the option to defer the effective date of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.
Likewise, the FASB agreed to postpone the effective date of ASU 2016-02, Leases (Topic 842), for private companies and private not-for-profit entities to annual reporting periods beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. The deadline for implementing the updated lease standard will also be amended for nonprofit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market (public NFPs) and which have not yet issued financial statements. For these entities, the updated lease standard will take effect for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.