NCUA Announces Change to CECL Effective Date That Helps Align Credit Unions with Accounting Standards

This blog was authored by my colleague Devin Allard – Manager, Financial Institutions.

Background:

In 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard, current expected credit losses methodology (CECL), for estimating allowances for credit losses. Since then, the FASB has delayed the effective date for the CECL standard to fiscal years beginning after December 15, 2022. Some institutions have already early adopted the new standard and CECL implementation will not be delayed again.

On March 9, 2022, the NCUA issued an Accounting Alert, interpreting the term fiscal year to mean “calendar year”. This alert announced an effective date of CECL on January 1, 2023, regardless of the institution’s audit year-end. This effective date was based on the Federal Credit Union Act (12 U.S.C. § 1760) which requires all federal credit unions to have a fiscal year ending on December 31. However, the FASB allows audits to be conducted on different reporting year-ends.

Change:

On July 20, 2022, the NCUA issued an Accounting Alert, superseding the alert that was issued on March 9 of the same year. This new alert states that all federal credit unions may now adopt CECL based on their audited financial reporting year if this is different from its fiscal year. For example, a federal credit union with an audit year end of March 31, would have an effective date of April 1, and would adopt CECL on April 1, 2023. Federal credit unions that have an audit year-end that is the same as a calendar year-end will continue to adopt CECL on January 1, 2023.

Relief:

Under the March 9, 2022, alert, a federal credit union with a financial year-end differing from the calendar year-end would have been required to adopt CECL early, or, theoretically, to adopt the standard in the middle of a fiscal year. Adopting the standard early would disqualify a credit union for the optional three-year phase-in period on their net worth. Adopting the standard mid-fiscal year is not allowed under generally accepted accounting principles. The July 20, 2022, revision will now permit proper adoption of the CECL standard under generally accepted accounting standards.

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