On July 17, 2019, the Financial Accounting Standards Board (FASB) voted to delay the effective date for accounting for credit losses, commonly referred to as CECL. The effective date for calendar year-end SEC filers, excluding smaller reporting companies, will remain January 1, 2020. The new effective date for all other calendar year-end entities will be January 1, 2023.
So, what do I recommend? Don’t wait to get started. This delay is being granted to give smaller institutions additional time to gather the appropriate information to implement CECL. Take advantage of this time to start (or continue) gathering the data to implement a sound CECL methodology. Use this time to consider different methods of calculating the allowance for loan and lease losses (ALLL) and determine which is the best for your given situation.
I believe this is just a delay, not a prediction of the demise of CECL. However, the ABA and others have been lobbying the FASB and Congress to stop CECL. While I can’t predict what the ultimate resolution will be, I believe it is unlikely that CECL will be rescinded. With large public companies set to implement this standard in 2020, I think it’s highly unlikely that there will ultimately be two sets of accounting standards in this area.
Regardless of what the future may hold for this accounting standard, it will be wise for institutions to act as if the standard will become effective beginning in 2023 as proposed. What Mark Twain said so many years ago is likely true about CECL: “The reports of my death are greatly exaggerated.”
If you need assistance with your CECL process or other aspects of your ALLL methodology, please contact your Wipfli relationship executive or visit wipfli.com/fiCECL.