Will the FASB defer CECL implementation date for all public companies?

The implementation deadlines have been deferred for the updated accounting rules on current expected credit losses (CECL), revenue recognition, and leases in response to the novel coronavirus crisis. But those deferrals apply only to certain entities. In particular, the CECL deferral excludes publicly traded insurers, credit card companies, and auto lenders.

Now these overlooked creditors are asking the Financial Accounting Standards Board (FASB) to extend them the same relief. So far, however, the FASB has remained mostly silent.

COVID-19 relief efforts

President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March, giving large public insured depository institutions (including credit unions), bank holding companies, and any affiliates the option to temporarily delay measuring credit losses on financial instruments under the CECL methodology. The delay lasts until the end of this year or until the national emergency declaration for COVID-19 is lifted, whichever comes first.

But the CARES Act ignores nonfinancial companies and some finance companies, including credit card companies and auto lenders. As a result, those companies still must apply the CECL standard as of January 1, 2020, if they are a large public calendar year-end company.

Requests for additional relief

In November 2019, the FASB gave a subset of companies — smaller reporting companies (SRCs) as defined by the Securities and Exchange Commission (SEC), private companies, and nonprofit entities — until 2023 to adopt the CECL rules. Though large public companies didn’t get a CECL deferral from the FASB, it has been conducting webinars and other educational outreach to help companies understand how to adopt the changes.

Not surprisingly, the entities that were overlooked in the CARES Act are asking the FASB to codify a delay that would extend to all public companies.

The Independent Community Bankers of America (ICBA) has sent the FASB a separate request to delay the CECL standard. In an April 23 letter, the ICBA asked the FASB to delay the CECL standard from 2023 to 2025 for all banks.

So far, the FASB hasn’t shown any interest in further delaying CECL for any large public company. In fact, the FASB vehemently lobbied Congress to remove the CECL deferral provisions from the CARES Act.

Options to delay revenue recognition and lease rules

On May 20, the FASB approved one-year deferrals of the updated revenue recognition and lease standards for certain entities. Specifically, the FASB gave all nonpublic entities that have not yet issued their financial statements the option to defer the effective date of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.

Likewise, the FASB agreed to postpone the effective date of ASU 2016-02, Leases (Topic 842), for private companies and private nonprofit entities to annual reporting periods beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. The deadline for implementing the updated lease standard will also be amended for nonprofit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market (public nonprofits) and which have not yet issued financial statements. For these entities, the updated lease standard will take effect for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The FASB may feel additional pressure from stakeholders to provide more relief to help companies during the COVID-19 pandemic, so reach out to a KraftCPAs professional for more developments or tips to implement the CECL model.

© 2020

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