WASHINGTON—A representative from Mission Federal Credit Union in San Diego shared the credit union perspective during the recent Financial Accounting Standards Board (FASB) roundtable on the current expected credit loss (CECL) standard.
Representatives from several financial institutions that have already adopted the standard were also present, according to NAFCU, on whose behalf the Mission FCU rep was appearing.
During the discussion, roundtable participants addressed challenges related to standardization in preparer disclosures and lack of comparability between macroeconomic assumptions and reasonable and supportable forecast periods, among other things, which “sometimes frustrated the process of peer benchmarking,” said NAFCU.
Several private analysts present during the roundtable suggested that the CECL standard allowed banks increased their reserves for expected credit losses more quickly. “However, it was also observed that the incurred loss methodology permitted a similar build-up through adjustments to qualitative and environmental factors,” NAFCU stated.
Other Challenges
In addition, roundtable participants briefly discussed the interplay of CECL and the coronavirus pandemic, remarking upon certain challenges faced by smaller financial institutions during a period of stress and how prepares addressed unprecedent government interventions in the economy, NAFCU said. For community institutions that have not yet implemented CECL, including credit unions, FASB staff shared materials indicating that these groups would appreciate a simplified approach to developing a reserve under CECL to ease implementation burdens, NAFCU said.
One roundtable participant noted that the process of CECL adoption for financial institutions under $10 billion in assets and was more costly and complex than anticipated, according to the NAFCU report. FASB included more information on the topic in the official meeting handout.
TDR Issues
On the issue of troubled debt restructurings (TDRs), FASB received feedback prior to the roundtable that indicated the cost of TDR accounting for CECL adopters and generating the required disclosures for TDRs may not justify the benefits, NAFCU said.
According to the trade group, FASB staff noted challenges associated with determining whether a modification is in fact a TDR and that certain modification disclosure improvements may be better alternatives to TDR designation; however, “there could be a tradeoff in terms of replacing the complexity of TDR accounting with greater complexity in modification accounting.”