Comment Letters Needed for Proposed New Accounting Standards
The Financial Accounting Standards Board and the International
Accounting Standards Board are jointly proposing new standards
for accounting of ALLL and Other Than Temporary Impairment of
debt securities (OTTI) called the Current Expected Credit Loss
model (“CECL”). The proposal is intended to address the
overstatement of assets caused by delayed recognition of credit
losses under existing standards, which recognize a credit loss
that is probable or has already incurred. The CECL model, which
applies to loans, debt securities, lease receivables, loan
commitments, and other receivables, requires banks to impair
existing financial assets on the basis of current estimates of
contractual cash flows not expected to be collected. Estimates
would be based on past events, current conditions, and
The CECL model focuses on recording “life of loan” (“LOL”) losses as of loan origination, which would require banks to make forecasts far beyond their capability. Because CECL is unrelated to how banks manage credit losses, it would require significant changes to the systems that banks currently use to estimate credit losses. As a result, bankers would be producing estimates that are unreliable to users of financial disclosures and also inconsistent with current regulatory standards.
Bankers are requested to send comments as soon as possible to FASB urging it to continue working with bankers, investors, regulators, and auditors to improve the proposal.
CBA has prepared a sample comment letter for you to use as well as a background document on the issue. If this proposal affects your bank, your voice is important.