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Are You a PBE? Lenders Need to Know

July 21, 2017
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PBEs will start estimating their allowances according to the new CECL standard at least a year earlier than non-PBEs.

If you attended the MST 2017 National ALLL Conference – and likely even if you didn’t attend – you know that there are still several aspects of CECL that the FASB’s Transition Resource Group is discussing.

One of the concerns that banks are grappling with is the definition of a public business entity (PBE), important because PBEs will start estimating their allowances according to the new CECL standard at least a year earlier than non-PBEs. As well, certain parts of disclosures apply or don’t based on whether or not your institution is classified as a PBE.

If you are an SEC filer, the matter is clear. Otherwise it gets cloudy.

“I think this needs to be clarified quickly,” Grant Thornton Partner Graham Dyer told conference attendees. Grant Thornton Partner Rahul Gupta, who served as FASB staff through the development of CECL, agreed.

“If you aren’t aware of this, I suggest you get yourself up to speed,” Gupta warned.

Dyer added that the clarification will likely come first from the AICPA. When we called the AICPA, they could not tell us when clarification might come, noting only that, “It is a work in progress.”

Are you are public business entity or not? It’s not as simple as whether or not you have shareholders.

Among the relevant aspects of the current definition under GAAP, your institution is a PBE if, “It has issued, or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market.” Another relevant passage indicates your institution is  a PBE if,  “It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods).” 

An entity that meets any of these conditions in the definition of PBEs is a PBE. But, Dyer and Gupta stressed, there is room for question. There are gray areas associated with each and nuances that, misinterpreted or misunderstood, could have an institution categorized as a PBE.

Click here for video footage of the conference discussion relating to PBE definition and interpretation.

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