Pub. 10 2019 Issue 1

www.wvbankers.org 16 West Virginia Banker By Kelly Shafer, CPA, Suttle & Stalnaker, PLLC CECL Implementation Delayed for Nonpublic Business Entities I n November 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses which delays the implementation of ASU No. 2016-13, commonly referred to as “CECL” for nonpublic business entities. With the release of ASU 2018-19, nonpublic financial institutions will have an additional year to prepare for CECL. Under the new standard, implementation for nonpublic business entities is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This change aligns the implementation date of annual financial statements for nonpublic business entities with the implementation date for their interim financial statements. Public business entities, however, are not afforded the same relief as their implementation dates remain unchanged under the new standard. Financial institutions that are SEC filers are required to implement for fiscal years beginning after December 15, 2019 while financial institutions that are public business enti- ties but do not meet the definition of an SEC filer are required to implement for fiscal years beginning after December 15, 2020. While the delay in implementation for nonpublic business entities provides additional time for many financial institutions to prepare for the complexities of the new CECL model, it is still important to move forward with implementation plans. Whether you decide to develop your CECL model internally or outsource, there are decisions to make and key steps that man- agement can take now to prepare for a successful transition. First, start collecting and analyzing your loan data. You likely already have most of the data you will need to develop your CECL model. Work with your existing system capabilities to collect data, determine where you have data gaps, and formulate a plan to obtain any additional data you will need. Many financial institutions are looking to the call report as a starting point for data analysis when developing their model. Once you have captured the data, group loans with similar risk characteristics together in pools. You should then start evaluat- ing allowance estimation methods to be used for each pool. With a variety of options available, the method you choose should be the most suitable for the loan pool and align with the risk characteristics of the pool. For example, vintage analysis may be suitable for mortgage loans while a discounted cash flows model may be more appropriate for commercial real estate loans. Since CECL does not prescribe the use of specific methods there will be a significant amount of judgment involved in this process. As you work through the implementation process, keep in mind that adjustments will be required along the way. It is recommended that financial institutions run the CECL model against their current ALLL calculation for a minimum of two quarters prior to full implementation to refine the model and ensure it is working as intended. Finally, documentation is key. While CECL affords you the flexibility to develop a model that is most appropriate and practical for your financial intuition, the level of judgment involved underscores the need to support estimates with underlying documentation.  Kelly Shafer is a partner with Suttle & Stalnaker, PLLC based out of the firm’s Charleston, West Virginia office. Kelly has over fourteen years of experience in public accounting practice and as a member of the firm’s Financial Institution Services Group, specializes in external audit services for financial institutions. She can be reached at 304-343-4126 or by email at kshafer@suttlecpas.com.