Pub. 11 2020 Issue 2

Pub. 11 2020 I Issue 2 29 West Virginia Banker Patrick McGraw is a senior manager at Arnett Carbis Toothman LLP, located in the Morgantown, West Virginia office. A certified public accountant, Mr. McGraw has approximately 12 years of experience in external audit, internal audit and consulting in the financial institutions industry. Mr. McGraw can be contacted at 304-225-6000 or through email: patrick.mcgraw@actcpas.com . loss model (“CECL”) in Jan. 2020 an optional delay, until the earlier of Dec. 31, 2020, or the national coronavirus emergency declared by the president, terminates. Private banking organi- zations are still currently scheduled to implement CECL in January 2023. This provision will likely have a minimal impact on large, public banking organ- izations, since most of those organi- zations have been preparing for years to implement CECL and were likely already prepared to implement the ASU with their first quarter filings. While the effective date delays noted above could provide some temporary relief from implementing new account- ing guidance, most of the questions we have received from banking clients relate to accounting for specific loan modifications or new loan programs implemented as a result of COVID-19 under existing accounting standards. The FASB staff recently discussed its ef- forts to address the accounting for com- monly encountered situations regarding Paycheck Protection Program (“PPP”) loans. The FASB indicated they expect the American Institute of Certified Public Accountants (“AICPA”) to publish question and answer documents in the near future to address specific account- ing considerations relating to PPP loans. Some of the most common questions we have been receiving related to COVID-19 related loan modifications or accounting for PPP loans are addressed in the following paragraphs. 1. How should financial institutions ac- count for deferred fees on PPP loans? Although it appears this may be addressed when the AICPA releases question and answer documents through technical inquiries mentioned above, we are not currently aware of any specific guidance released in relation to ASC 310-20 and the PPP program. It is our opinion that deferred fees and costs would be recog- nized over the life of the loan (i.e., over contractual maturity). To the extent they are forgiven and repaid early, we believe it would be appropriate to immediately recognize any remaining deferred amounts. Alternatively, with more effort, early pre-payments could be estimated in developing ac- cretion/amortization assumptions, which would result in more accre- tion/amortization per month, with any remaining deferred amounts still recognized at the time the loan is paid off. Since we antici- pate the forgiveness happening fairly quickly, we don’t anticipate financial results to be materially different using the two meth- ods above. We believe the latter would result in more accounting complexities and might not be worth the extra effort. 2. How should interest income be recognized on loans with certain payment concessions granted for borrowers impacted by COVID-19? The FASB issued some guidance related to financial institutions rec- ognizing interest income on certain payment concessions granted to borrowers impacted by COVID-19. In one example provided by the FASB, a financial institution provid- ed a “loan payment holiday,” allow- ing borrowers to temporarily stop payments with interest not accruing while the payment holiday was in effect. The modification in the fact pattern did not represent a trou- bled debt restructuring. The FASB identified two acceptable methods of recognizing interest income dur- ing this situation. The first method involves determining the effective interest rate that equates to the revised remaining cash flows and recognizes interest at the revised rate during the payment holiday. The second method involves not recognizing interest during the pay- ment holiday and begins accruing once the payments resume. While the fact pattern above includes a financial institution not accruing in- terest during the payment holiday, we believe it is acceptable to apply the same guidance to when interest continues to accrue. Changes and updated accounting guid- ance related to COVID-19 are coming out daily. It is vital for those in charge of financial reporting to stay up to date on current guidance and releases related to FASB technical inquiries. We recom- mend reaching out to your accounting professionals if you have any questions or need any assistance.  In May, the FASB reaffirmed its decision and voted to delay the lease and revenue recognition ASU effective dates for private companies. While changing the effective date for adopting the new revenue standard will most likely not have a major impact on the financial statements of financial institutions, it could have a significant impact on loan customers; for example, certain loan covenants that might need to be adjusted once the standard is implemented can be delayed a year.