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CUES | On Compliance: Don’t Slow Down on CECL Despite Delay

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By Kylee Wooten, Abrigo
August 22, 2019

Use the extra time to ensure a successful implementation by 2023.

This July, the Financial Accounting Standards Board unanimously voted to propose a delay for the implementation of the current expected credit loss standard for some institutions. This marks the second delay for credit unions, pushing the effective date to January 2023. (Stakeholders may comment on the proposal until Sept. 16.) While this delay may come as a relief for some financial institutions, it’s also important to remember that institutions will be held accountable for the additional time given. 

The new CECL standard has been called the “most sweeping change” to bank accounting and, due to its complexity, it can pose significant challenges to financial institutions of all sizes, especially when it comes to data. Rather than wait until 2023, non-public business entities have a unique opportunity to get ahead of the game. 

“Financial institutions should be cautious about taking the foot off of the gas pedal, especially if they have already formed a CECL steering committee or started down the path of any type of data gap assessment or building a model or engaging with a third-party solution,” says Regan Camp, Abrigo managing director of advisory services. “Some people are going to embrace any delay as ‘I’m going to hurry up and wait, and we’ll get started a couple of years down the road.’ Then, in three years, they’ll be on the sidelines with their fingers crossed hoping to get additional relief.”

When the first extension for non-PBEs was passed, Shayne Kuhaneck, assistant director at FASB, said during a CECL implementation webinar, “The consistent message is that data continues to be challenging, so I would recommend not slowing down and I would recommend continuing to collect data and—if you haven’t started—to start, and see where your gap is. While you have the extra time, I think it is a perfect opportunity to keep moving forward with your plans.”

A crucial takeaway from the delay is that it is just that: a delay. As of right now, there is no indication of CECL going away completely, so it is important that credit unions and other non-SEC filing financial institutions take advantage of the extra time to ensure a successful implementation by 2023.

Why start now?

Many financial institutions have been in a state of  “CECL paralysis,” unsure of where to begin. 

“Some institutions may think that there is new found time, as perceived in the extension of the effective date for non-PBEs … but the reality is that institutions will not be able to get where they need to go to get this thing implemented and will start running out of time if the transition process is not started,” Camp adds. 

If credit unions begin now, they will have ample time to complete a fit-gap analysis, evaluate measurement options and more, while still being able to complete a parallel run four quarters before their effective date. Waiting until the effective date nears makes the cost of achieving compliance higher. 

Examiners expect parallel runs, and the closer that credit unions wait until 2023, the more scrutiny they will garner from auditors, regulators and examiners who have already witnessed the preparations and transitions of large SEC-filing institutions. Rather than stay in CECL paralysis during this relief period, credit unions should take advantage of the flexibility they currently have. 

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To read the full article featuring Abrigo, visit CU Management powered by CUES, “On Compliance: Don’t Slow Down on CECL Despite Delay.”