The Financial Accounting Standards Board has decided it will give companies some extra time to implement a pending standard that will change and accelerate the recognition of loan losses.

After delays in finalizing the standard, FASB says it expects to publish the finished rule in June. The board originally planned for the standard to take effect in 2019 for calendar-year public companies, but FASB voted at a regular board meeting recently to add an extra year to the implementation time line. For public companies, the new standard will take effect for fiscal years and interim periods within those years beginning after Dec. 15, 2019.

FASB has spent years developing and refining its “current expected credit loss” model for how entities should give investors some early warning that debt instruments are not performing as anticipated. FASB issued proposals in 2010 and again in 2012, working originally with the International Accounting Standards Board in the hope that the two boards could issue converged standards.

Ultimately, the boards chose different methods for how to require companies to reflect signs of trouble in their loan portfolios. FASB plans to require companies to estimate expected losses on debt instruments and make a provision for a loss at inception. The IASB chose a method that does not require such upfront recognition of a possible loss.

FASB took heat from banking organizations, especially those voicing concerns of smaller banks and community banks that would find the model difficult and costly to apply. The Independent Community Bankers Association recently praised FASB for responding to the concerns with changes to the planned language of the standard that would give smaller banks some flexibility in how they would apply the new requirements.

“The revised CECL proposal is more flexible and scalable for community banks, which will allow them to continue using their personal understanding of their local markets—instead of complex modeling systems—to determine their loan-loss reserves,” ICBA wrote. “By allowing community banks to evaluate and adjust their loan-loss amounts using qualitative factors, historical losses, and current systems, such as spreadsheets and narratives, FASB has made important changes to its proposed accounting standard.”

Mike Gullette, vice president at the American Bankers Association, says he appreciates FASB’s acknowledgment that implementing the new model will take more time than FASB originally intended to allow, but concerns about cost and complexity still persist. “We believe the costs for most banks will be much greater than what FASB estimates because addressing these changes on an ongoing basis will require more complex and controlled systems,” he said. “Open questions related to the cost of auditing CECL estimates will also need to be answered.”

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