CECL and the CARES Act: What does it mean for your private financial institution?
Financial institutions are facing numerous challenges as the economy and society continue to react to the effects of COVID-19. When the CARES Act was passed last week, it created a need for interpretation and logical implementation. In section 4014, of title IV, most financial institutions took note of the temporary relief from current expected credit losses (CECL). We have heard your question:
Does this mean CECL is delayed?
The very simple answer is no. Financial institutions directly impacted by this aspect of the CARES Act are SEC filers, who were required to implement as of January 1, 2020, and any other entity who early adopted. This provision gives those financial institutions temporary relief from CECL and the option to utilize the historical inherent loss model. As outlined in section 4014 and the joint statement noted above, this temporary relief is granted until the earlier of December 31, 2020 or the termination of the National Emergency.
So what does this mean for everyone else? We recognize private financial institutions are focused on the needs of their customers during this time. You are facing challenges different from what we saw during the last financial crisis – physical limitations, stay-at-home orders, and a need to be almost 100% virtual. We also recognize you likely hit pause on your CECL planning or perhaps you have not started. We encourage you to ensure this is just a pause and not a stop. We recommend that you continue to work internally and/or with your third party providers, as time permits. For those of you who have not started, continue to plan for this accounting change. As of the date of this post, there is no indication from the regulatory bodies that CECL will be permanently delayed.
The current effective dates and the impact of the CARES Act are listed below. We are here to know you and help you. We encourage you to contact us if you need further assistance during this time.
Effective dates
Temporary relief from implementation:
- SEC filers, excluding smaller reporting companies — Annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.
- Any entity who early adopted, as permitted.
Effective dates remain unchanged:
- All other entities, including smaller reporting companies – Annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years.
CLA is here to help you work through any questions you have related to CECL. Please contact us.
Scott is the leader in CLA’s Financial Institutions group, and a member of the National Assurance Technical Group. He has 15 years of experience with audit and accounting services for financial institutions of all sizes.
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