FASB adjusts CECL deadline for private banks

Excerpt From: https://www.accountingtoday.com/news/fasb-adjusts-cecl-deadline-for-private-banks-and-credit-unions

FASB adjusts CECL deadline for private banks
By Michael Cohn | Accounting Today
July 27, 2018, 4:06 p.m. EDT

…Stephen V. Masterson, national leader of the firm’s U.S. Financial Institutions Advisory Services practice, sees the move as a significant one. “The way the FASB has written the guidance and the requirements to date, the private banks would have to file and would have to comply with CECL by Dec. 31, 2021,” he told Accounting Today. “The revision they’ve proposed, and it’s not final yet, will have to go through a comment period and ultimately be adopted if it passes. Then the CECL standard would become effective for these private banks for their calendar years starting Jan. 1, 2022. It seems like it’s a one-second delay, but the reason that it’s important is if they have to file their Dec. 31, 2021, financials under CECL, then they have to go back to Jan. 1, 2021, to adjust their retained earnings upon adoption. Basically if you require a private bank to report as of Dec. 31, 2021, they have to adjust their retained earnings for the impact of CECL upon adoption at the beginning of that year. It basically gives them a whole year to adjust their retained earnings to Jan. 1, 2022. That’s a big deal for these banks.”

Even with the extra year to prepare for the CECL standard, BDO is urging private banks to get ready soon. The firm has released a CECL Implementation Guide to help private and public banks, savings associations, credit unions and financial institution holding companies apply the standard. Masterson believes they should put together an action plan using data analytics and involving a team of people throughout the organization, including internal and external auditors, the CFO, controller, treasurer, chief credit officer, chief risk officer, chief information officer and information technology department.

“They’re going to have to pull and control data from a governance, backup and integrity perspective,” he said. “That data and that process are going to be audited by external auditors, internal auditors and examiners. A very comprehensive organizational audit is going to have to occur. Internal audit needs to be involved to make sure the process has integrity as they build it. The board and the audit committee are going to have to be trained. They’re going to have to understand it enough so when it’s presented to them they can provide a credible challenge and make sure it’s right. The second piece is the data. For large public companies, they’ve got all kinds of data. Private companies don’t have a lot of data, and they’re going to have to determine what data is appropriate and where they’re going to get it. The third piece is they can’t overbuild their CECL model. It seems complex and scary, but taking a rightsized approach for the institution is very important. Last but not least, document the process and internal controls and test the internal controls as they go.”

Click here to read full PDF – Masterson in Accounting Today