WASHINGTON—The Financial Accounting Standards Board, which issued the current expected credit loss (CECL) standard, has issued a second CECL question-and-answer document about the standard.
FASB staff also announced that it is planning a series of training sessions around the country to discuss issues addressed in the document to help smaller institutions with CECL implementation, with more information to follow.
CUNA explained the document provides a background of the standard and answers questions on the following topics:
- General questions:
- Does the application of the word forecast in paragraph 326-20-30-7 infer computer-based modeling analysis is required?
- If an entity’s actual credit losses differ from its estimate of expected credit losses, is it required to modify its forecasting methodology?
- Historical loss information:
- Can an entity’s process for determining expected credit losses consider only historical information?
- How should an entity determine which historical loss information to use when estimating expected credit losses?
- Reasonable and supportable:
- Is an entity required to consider all sources of available information when estimating expected credit losses?
- What if external data are not costly, but internal data are more relevant to an entity’s loss calculation? Is the entity required to obtain and/or use the external data?
- Should an entity use external data to develop estimates of credit losses if internal information is available?
- May the length of reasonable and supportable forecast periods vary between different portfolios, products, pools, and inputs?
- Does an entity need to include the full contractual period (adjusted for prepayments) in its estimate of the reasonable and supportable forecast period?
- Should an entity reevaluate its reasonable and supportable forecast period each reporting period?
- Is an entity required to correlate reasonable and supportable forecasts to macroeconomic data, such as nationwide or statewide data?
- When developing a reasonable and supportable forecast to estimate expected credit losses, is probability weighting of multiple economic scenarios required?
- Is there a standard threshold that can be used to adjust historical loss information?
- Reversion to historical loss information:
- What should an entity do if it cannot forecast estimated credit losses over the entire contractual term (adjusted for prepayments)?
- Can an entity adjust the historical loss information used in the reversion period for existing economic conditions or expectations of future economic conditions when developing estimates of expected credit losses?
- Is an entity required to revert to historical loss information on a straight-line basis?
As CUToday.info reported, the Financial Accounting Standards Board has announced a delay in the implementation date for CECL for an additional year for credit unions, pushing back the compliance date until 2023.