Disclosure Reports: Why the FASB changes?
Sageworks recently hosted a webinar, “ALLL” About Disclosure Reports: Key Issues to Know, featuring Ancin Cooley, principal of Synergy Bank Consulting, and experts from Sageworks. The webinar discussed FASB Accounting Standards Update (ASU) 2010-20 and the challenges that financial institutions face as a result. Below are portions of the webinar and associated whitepaper describing why the update was issued.
This update called for swift change surrounding disclosure requirements involving the credit quality of financing receivables and the allowance for credit losses. More than two years after the July 2010 release date, however, bankers’ interpretation of this update has been inconsistent and ill effective as a result of the quick implementation goals, ambiguous descriptions and lack of FASB-published documentation to discern the new requirements.
Why the update?
As stated in the FASB Accounting Standards Update, “The main objective in developing this Update is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables.”
Translation:
A portion of the bank fallout and financial crisis may have been avoided had financial institutions better understood and been more transparent about the credit quality within their loan portfolios. With the swift enactment of this update, the goal is for financial statement users at financial institutions (a term that broadly applies to users internally and externally, including the board of directors, investors, regulatory agencies, auditors, competitors, purchasers and partners) to better recognize credit weakness in an institution’s loan portfolio. Armed with more complete information, the financial statement users can make more informed, strategic decisions about concentrations or thresholds, with the goal of preventing future weakness.
Provisions within ASU 2010-20 also allowed FASB to push for greater alignment between requirements in U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). While U.S. GAAP only requires credit quality and allowance for credit losses to be presented on an aggregate basis, the new update calls for information to be presented in disaggregated form, which is similar to the disaggregation principles of IFRS.
For more information about requirements and challenges surrounding disclosure reports, download the whitepaper titled: 6 Key Items to Know About Disclosure Reports. Slides and a recording of the webinar presentation are also available here.
Sageworks, a financial information company that provides risk management solutions to financial institutions, hosts webinars in its monthly 2013 webinar series. These free, educational webinars are led by banking industry experts who bring unique market intelligence, insights and best practices to our financial institution clientele. Access archived webinar recordings and sign up for future webinars here.
