Investors are frustrated they are not getting more information from leading banks over how financial statements will be affected by the adoption of the new CECL accounting rules on credit losses.
That’s what Hal Schroeder, a member of the Financial Accounting Standards Board, said to a conference of bankers at the American Institute of Certified Public Accountants this week. FASB is hearing from investors who say they expect more numerical disclosure under Staff Accounting Bulletin No. 74 regarding how leading banks will be affected by the new current expected credit losses approach to reporting.
“During our outreach, investors have told us they’re frustrated at having to work on their 2020 estimates with little to go on, other than a few high-level estimates,” said Schroeder.
The controversial CECL standard takes effect for public companies beginning Jan. 1, 2020, although FASB is planning to give smaller reporting companies as well as non-public entities some additional time to prepare. As many banks finalize their processes for arriving at more forward-looking loss estimates that are largely expected to increase reserves on balance sheets, Schroeder is advising them to use the remainder of 2019 and the early days of 2020 to work out their messaging.
“Help your debt and equity holders readjust their eyesight,” Schroeder said.
Although some are still holding out hope CECL will be delayed, Schroeder said FASB has no basis for believing entities are struggling to meet the time line for the new accounting based on any confusion or uncertainty over the standard.
“In the past year, the staff has received very few questions, many of which could be quickly answered by referring directly to the guidance,” he said. “Considering that our technical inquiry service is free and accessible online, the limited number of questions is at odds with the view some have voiced that there are many unanswered questions, and therefore, CECL should be delayed.”
Schroeder referred to a few pieces of legislation in Congress, one in the House and another in the Senate, that would require FASB to defer CECL while its economic effects can be further studied. “Those advocating stop-and-study allege dire consequences from CECL’s so-called procyclical effects on lending,” he said. “However, independent studies already conducted do not support such concerns.”
Sagar Teotia, chief accountant at the SEC, said at the same conference he and his staff in the Office of the Chief Accountant “have observed much progress” on implementation. “OCA has had many productive discussions with stakeholders, including financial institutions, other regulators, audit firms, and industry groups, and I encourage everyone to stay engaged as we approach the standard’s effective date,” he said.