After FASB’s Recent Changes, CUNA Still Seeks CECL Relief

Credit unions are happy with some changes the Financial Accounting Standards Board (FASB) is making to Topic 326, but they’d still like to see more, according to a letter from the Credit Union National Association (CUNA).

In a Sept. 17 letter commenting on the FASB’s recent proposals, CUNA’s senior director of advocacy and counsel, Luke Martone, said CUNA supports changes surrounding the CECL effective date for nonpublic business entities (non-PBEs) and operating lease receivables, but still would like to see additional work on the implementation challenges that still prevail.

CUNA supports CECL deadline changes

The effective date change intends to align the implementation date for non-PBEs’ annual financial statements with the implementation date for their interim financial statements so that these entities implement CECL for periods after Dec. 15, 2021. For entities reporting on a calendar-year-end basis, this essentially provides them with 90 more days to report reserve levels in accordance with the standard beginning in Q1 2022 instead of Q4 2021.

Martone said in the letter that, “…we agree with the Board’s proposed change to the effective date for non-PBEs. We believe this change will not only provide much needed additional time for credit unions to implement system updates but will also reduce confusion, particularly for those entities required to adopt in the fourth quarter.”

Additionally, the ASU clarifies that receivables arising from operating leases are not within the scope of the credit losses standard but instead should be accounted for under ASU No. 2016-02, Leases (Topic 842). CUNA viewed this update as potentially having a positive impact on its stakeholder operations.

“We support this proposed clarifying change. While this does not yet appear to be a major issue of confusion for credit unions, we believe this amendment may mitigate stakeholder confusion and we are unaware of any unintended consequences associated with this clarification,” said Martone.

Hopes for the future

In the letter, CUNA was satisfied with FASB’s openness to address CECL issues brought up by entities and their representatives. However, the association still reiterated the large impact that the new accounting standard might have on its network of credit unions and 110 million members.

“We would be remiss if we did not reiterate our longstanding position that application of CECL to credit unions is inappropriate,” the CUNA said in its letter to FASB. “CECL is intended to address delayed recognition of credit losses resulting in insufficient funding of the allowance accounts of certain covered entities. However, underfunding of allowance accounts has not generally been an issue for credit unions. In fact, during the height of the recession, accounting rules resulted in credit unions overfunding their provisions for loan and lease losses and generally maintaining their allowance accounts in surplus.”

The association said that this caused credit union earnings to be understated during the recession.

“To the extent CECL requires further increases to even higher levels of the allowance account, these distortions will be even greater,” it said in its letter.

In addition to financial impacts, CUNA is concerned about the compliance burden on its entities. Martone explained that 2018 has been the most heavily regulated year for credit unions. Due to the amount of regulation changes and the level of detail that these updates require, credit unions are challenged by finding the right resources to assist with complying.

For example, CECL requires portfolio losses to be projected over the life of the loan. The letter highlighted that even credit unions that have the right resources will find this granular level of loan data analysis to be challenging since they have not performed intensive data calculations like this in the past, unlike their larger bank counterparts.

“While the credit losses ASU has been adopted and is scheduled to take effect over the next few years, we share these ongoing concerns in hope that FASB will take advantage of future opportunities to adjust the standard with an eye toward reducing the compliance burden on credit unions,” said Martone.

Only time will tell whether FASB will continue to provide CECL adjustments for credit unions, addressing these implementation concerns that still remain.