Time is a funny thing. It often feels like you have a lot of time to prepare for the holidays, a vacation, or another special event, and then suddenly it’s here. That’s how I feel right now with less than 30 days to go before Christmas. I have managed to procrastinate the last 11 months and have yet to think of a single gift I’m going to buy. I’m not sure whether or not it’s helpful that my five-year-old son reminds me daily how many days there are until Christmas. Sometimes I think there is no way his calculations are accurate. But after taking a second to calculate in my head the actual number of days, I come to the realization that he is right, and I start to worry about everything I need to do. The next thought that pops into my mind is that in the worst-case scenario, Amazon Prime has two-day shipping, so I actually have a lot of time yet! While I’m fortunate I can rely on Amazon’s shipping policies for buying Christmas presents, that policy doesn’t carry over to GAAP and the significant new accounting standards for leases and the measurement of credit losses that were released during 2016.
Both of these accounting standards released during 2016 have a reasonably long period before they are required to be implemented, likely because of the significant impact they could have on your institution. Both standards could have an impact on capital adequacy. In addition, the new credit loss standard will require significantly more data to be collected to perform the calculation of the allowance for loan losses account than the current standard does. This information will need to be collected from a long time period, and procrastinating until closer to the implementation date will likely make the process much more difficult. We recommend institutions target December 2017 to select an appropriate methodology for the allowance for loan losses calculation so they will have adequate time to collect the necessary data.
The worst thing you can do is wait to determine the impact these accounting standards will have. We will continue to offer webinars on the implementation of the credit loss standard to assist your institution with the implementation. In addition, feel free to contact your Wipfli Relationship Executive as you have questions when you are determining how these new accounting standards will impact your institution.