Delay Announced In Radical Accounting Changes
Credit unions got a temporary stay of execution yesterday on one of the most importantly regulatory proposals that no one really wants to think about. The Financial Accounting Standards Board decided to put off until early next year final action on new accounting standards that would radically alter the way your credit union accounts for anticipated losses. ( Perhaps the Board didn’t want to deal with such a weighty issue around the time of the office holiday party. You know how crazy accountants can get when they get a few in them? Good Times )
Just how big a deal is this proposal? With the caveat that I am so bad at accounting that family legend has it that it was apparent at the age of ten that I would not be taking over my father’s accounting practice, if the FASB goes forward with this proposal it will have a more direct financial impact on most credit unions than the risk based capital reforms we have spent so much time fretting about. Currently losses have to be recognized when they become Probable. The FASB is moving towards an approach in which losses would have to be accounted for based on expected losses using a broader range of data such as the historical performance of similar contracts. It raises the real possibility that more money will have to be put aside to guard against potential future losses earlier in a loan’s life to guard against losses that may or may not materialize. As the exposure draft explains:
“the estimate of expected credit losses would be based on relevant information about past events, including historical loss experience with similar assets, current conditions, and reasonable and supportable forecasts that affect the expected collectability of the assets’ remaining contractual cash flows. An estimate of expected credit losses would always reflect both the possibility that a credit loss results and the possibility that no credit loss results.” That sounds expensive to me
And I’m not the only one. In its comment letter the normally understated CUNA predicted that the proposed changes would cause an immediate and drastic increase to the ALLL accounts of credit unions. it contended that this increase, which could double or even triple current ALLLs, would result directly in a reduction of retained earnings for many credit unions.
Even with yesterday’s delay it is still anticipated that the new standards will be finalized in the first quarter of next year and take effect in 2019. You don’t have as much time as you think. If I were you I would be getting a preliminary accounting assessment of how this proposal could impact your CU before your accountant starts hitting the holiday party circuit.
Here is some additional information
ihttp://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176160587228&acceptedDisclaimer=trues a link to the proposal and FASB’s announcement