Letter to Credit Unions No.: 16-CU-13
FAQ on the New Accounting Standard on Financial Instruments – Credit Losses
December 2016

NCUA, together with the other federal bank regulators, has developed Frequently Asked Questions related to the Financial Accounting Standards Board’s (FASB) new accounting standard for current expected credit losses (CECL). Although the regulatory reporting effective date of the CECL standard is not until December 31, 2021, credit unions will want to familiarize themselves with the nuances of the standard and take preliminary steps ahead of 2021. Specifically, credit unions will want to evaluate different allowance estimation methods.

NCUA does not plan to begin evaluating credit union implementation efforts until 2018.

Note: CECL may result in a credit union’s net worth declining upon implementation. NCUA is training examiners to take this into account when evaluating capital adequacy. NCUA will also add a new ratio to the Financial Performance Report to illustrate net worth differences prior to and after implementation of CECL.

Highlights of the FAQs

  • Question 4 highlights the various effective dates of CECL implementation. Generally, for credit unions, that would be the December 21, 2021 Call Report
  • Question 13 highlights changes to reporting of troubled debt restructuring
  • Question 19 discusses the prohibition on credit unions artificially building their allowance accounts in anticipation of CECL
    • Question 22 discusses what credit unions may do in anticipation of the effective date:
    • Socialize CECL to board and appropriate staff & ensure their understanding of changes from incurred loss method
    • Determine the steps and timing needed to implement the new CECL standard
    • Identify the functional areas within the CU that should participate in CECL implementation
    • Discuss implementation with the board of directors, audit committee, industry peers, external auditors, and regulators
    • Review existing allowance and credit risk management practices to identify processes that can be leveraged when applying the new standard
    • Determine the allowance estimation method or methods to be used;
    • Identify currently available data that should be maintained, data needs, and necessary system changes needed
    • Evaluate and plan for the potential impact of the new accounting standard on regulatory capital

FASB’s CECL standard was introduced in Accounting Standards Update (ASU) 2016-13, Topic 326, Financial Instruments – Credit Losses.

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