Delay Announced In Radical Accounting Changes

November 13, 2015 at 9:25 am Leave a comment

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

i a link to the proposal and FASB’s announcement

Entry filed under: Compliance, General, Regulatory. Tags: , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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