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Banks, Insurers Could Get Reprieve on Major Accounting Changes

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Banks, Insurers Could Get Reprieve on Major Accounting Changes

The Financial Accounting Standards Board plans to vote on July 17 to delay by at least a year the deadline for small public banks, credit unions, and privately held banks to comply with the current expected credit losses (CECL) standard, the biggest bank accounting change in recent memory.

FASB also is set to consider delaying the date by which private companies have to follow new rules for tallying obligations from leasing real estate and heavy equipment. Separately, the board plans to vote on whether insurance companies should get an across-the-board reprieve from following new insurance accounting rules set to go into effect in 2021.

The standard is set to go live in 2020 for large banks with smaller institutions following in phases one and two years later. FASB is set to vote on whether small public banks, credit unions, and privately held institutions should have until 2023 to comply.

It is rare for FASB to backtrack on the dates by which companies have to adopt new accounting standards—much less delay implementation on so many issues at once.

With such significant accounting changes rolling out in such short time frame, these are unusual times, said Dan Noll, senior director of accounting standards at the American Institute of CPAs.

“These major standards all coming to fruition or effective around the same time has been incredibly challenging,” Noll said. “So we’re just very appreciative that FASB is looking into this and considering that type of feedback that they’ve been hearing from many quarters.”

Even More Than Typical Delay

When FASB publishes a new accounting standard, it typically sets a date by which publicly traded companies must follow it and then gives private companies and not-for-profit organizations an additional year. The rationale is that those entities have fewer resources than the large companies listed on major stock exchanges.

That one-year difference, however, may not be enough for some of the big-ticket accounting standard changes, businesses and accountants have been telling FASB over the past year.

Foremost among FASB’s votes July 17 is whether to give small publicly traded companies more time to adopt the new credit losses standard.

The post-financial crisis accounting rule is designed to make banks and other businesses report losses earlier in the credit cycle. Banks, however, say booking losses up front will make them reluctant to lend in an economic downturn, which could hinder economic recovery.

Public companies adopted FASB’s new rules on leases in the first quarter of 2019. A sea change to current accounting rules, the standard requires businesses for the first time to tally all the liabilities associated with renting assets like fleets of trucks, warehouses, and railway cars and report them on their balance sheets. Because leasing is such a pervasive practice, some public companies have reported that the accounting change has been onerous.

Private companies expect the same challenges and have pleaded with the FASB for more time.

Pushing through the accounting changes back-to-back exacerbates the challenges, said Nancy Schroeder, managing member of Beacon Financial Consulting LLC and chair of the Institute of Management Accountants financial reporting committee.

“It’s just been a grind,” Schroeder said.

Separately, FASB plans to consider an across-the-board delay for an accounting standard for life insurers and other long-term insurance companies that is set to go into effect in 2021.

Although the changes are labeled “targeted improvements,” many insurers say they are more pervasive and need more time to be implemented.

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