April 27, 2016
On April 27, 2016, the Financial Accounting Standards Board (FASB) announced that it voted to proceed with the new current expected credit loss (CECL) standard but will defer the effective dates for all entities by one year. However, the FASB retained the ability for entities to early adopt as of the original early adoption date. In addition to the one-year deferral, the FASB discussed scaling vintage disclosure requirements for certain entities.
For the CECL standard, the FASB had created a subgroup of public business entities (PBEs) that do not meet the definition of a “Securities and Exchange Commission (SEC) filer” contained in U.S. generally accepted accounting principles (GAAP), and the effective date for those entities is later than the date for the PBEs that are SEC filers.
The effective dates that were decided previously were extended by one year as follows:
- PBEs that meet the definition of an SEC filer: fiscal years beginning after Dec. 15, 2019 (instead of 2018), including interim periods within those fiscal years
- Other PBEs: fiscal years beginning after Dec. 15, 2020 (instead of 2019), and interim periods within those fiscal years
- All other entities: fiscal years beginning after Dec. 15, 2020 (instead of 2019), and interim periods within the fiscal years beginning after Dec. 15, 2021 (instead of 2020)
The FASB reaffirmed its decision to permit early adoption for all entities for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years, which is consistent with the effective date that originally was agreed upon for PBEs.
Vintage Disclosure Changes
In addition, the FASB decided to change the vintage disclosure requirements for all entities other than SEC filers. For PBEs, the vintage disclosures will be required and will include disaggregated credit quality indicators for all classes of financing receivables by year of the asset’s origination (that is, vintage year).
The disclosure will be limited to no more than five annual reporting periods, with the balance for originations prior to those five periods shown in aggregate. However, the FASB decided that non-SEC filer PBEs will be able to elect a practical expedient in transition to disclose only three years of the required vintage information in the year of adoption and four years in the year after adoption. They must comply with the full five-year disclosure requirement in years thereafter. For all other entities (including non-PBEs, employee benefit plans, and not-for-profits), the vintage disclosures will be optional; therefore, those entities may elect not to make those disclosures.
Standard to Come in June 2016
The FASB decided that the benefits of the standard justify the costs and instructed the staff to proceed with creating a ballot draft for final approval by the board. The FASB expects to issue the standard in June of this year.
Staci Shannon contributed to this article.