September 20, 2020

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September 18, 2020

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September 17, 2020

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Possible Delay of CECL for Certain Small Banks and Nonpublic Entities

The adoption of the current expected credit loss (CECL) methodology for recording anticipated losses in a bank’s loans, certain debt securities, and other assets represents one of the most — if not the most — significant changes in bank accounting standards. Therefore, since the change was first announced in 2016, there has been significant pushback from the industry and even pending legislation to delay or repeal the change, which is due to go into effect for public business entities that are Security and Exchange Commission (SEC) filers for the upcoming fiscal year. At the same time, institutions have had to work diligently (and at significant cost) preparing for its implementation. Based on actions taken at the Financial Accounting Standards Board’s (FASB) July 17, 2019, meeting, it appears that a subset of this group may get a three-year reprieve from the upcoming implementation date. Non-SEC filers and private entities also will receive an extension. Larger banks, however, still have to comply, beginning with the first fiscal year after December 15, 2019.

At the same meeting, FASB also proposed delaying the effectiveness of certain other accounting standards regarding leasing and changing the accounting treatment for hedges in connection with the replacement of the London Interbank Offered Rate (LIBOR). FASB staff have been directed to draft proposed accounting standards updates to implement the proposals, which will remain subject to a final formal vote and a subsequent 30-day comment period.


CECL accounting requires that the expected credit loss over the life of a loan be recognized at the time the loan is booked. This is in sharp contrast to current accounting, which requires the recognition of a loss when the loss is probable. Calculating the expected credit loss requires forecasts of changes in the economy and other factors and introduces a substantial level of complexity, both in the preparation of the forecasts and in the recordkeeping to justify such forecasts. In recognition of this complexity, FASB took the first steps toward delaying the effective date of CECL accounting for three years for a subset of SEC filers — those that qualify as smaller reporting companies. Under current SEC rules, a smaller reporting company is a company with either (i) a public float under $250 million or (ii) annual revenue under $100 million and either no public float or a public float of less than $700 million. Non-SEC filers also would get an additional year before becoming subject to CECL accounting.

Under the proposal, companies would be separated into two “buckets.” The first bucket would consist of all SEC filers other than smaller reporting companies. Companies in this first bucket would see no relief and would become subject to CECL beginning with the first fiscal year after December 15, 2019, as currently scheduled. The second bucket, which would consist of all other entities, including smaller reporting companies, would not be required to comply with CECL until the first fiscal year beginning after December 15, 2022.

The proposed changes are summarized as follows (assuming a calendar fiscal year).

Entity Type

Current Effective Date

New Effective Date

SEC filer (not a smaller reporting company

January 1, 2020

No change

SEC filer (smaller reporting company

January 1, 2020

January 1, 2023

Public entity (non-SEC filer)

January 1, 2021

January 1, 2023

Nonpublic entities

January 1, 2022

January 1, 2023

In addition to the CECL changes, FASB also proposed changes in the effectiveness of certain other accounting changes.

Lease Accounting

All public business entities became subject to a new accounting standard for leases for the current fiscal year. This will not change. This standard requires the recognition of a right-of-use asset and a corresponding liability for operating leases with a term of 12 months or more. Companies other than public business entities were scheduled to become subject to this new standard for fiscal years beginning after December 15, 2019. The FASB has now proposed to defer the effective date for nonpublic business entities for an additional year, to December 15, 2020.


FASB also proposed accounting relief for entities that may have interest rate hedges with a LIBOR reference rate. As it is anticipated that the publication of LIBOR will end in 2021, entities that have financial contracts, including interest rate hedges that use LIBOR as a reference rate, will need to modify those contracts to reflect a new reference rate. Under current accounting standards, this change in rate could have significant negative consequences. FASB has proposed that for contracts that meet certain specified criteria, a change in the reference rate will be accounted for as a continuation of the contract rather than as the creation of a new contract.


All of these proposed changes are significant and, given that they were unanimously approved at the July 17, 2019, meeting, are likely to be approved when the formal vote is taken. That being said, given the deadline, affected institutions still must move forward in their efforts toward implementation of CECL and these other accounting standards, given the short period of time between the likely end of the comment period and the effective date of the new standards.

© 2020 Jones Walker LLPNational Law Review, Volume IX, Number 206


About this Author

Joan S. Guilfoyle, Banking and Finance Lawyer, Jones Walker Special Counsel
Special Counsel

Joan S. Guilfoyle is special counsel in the firm's Banking & Financial Services Practice Group in the Washington, D.C. office. Ms. Guilfoyle's practice concentrates on corporate and securities matters for financial institutions. She has extensive experience representing clients in connection with mergers and acquisitions, securities offerings, stock conversions, and securities compliance matters. Ms. Guilfoyle also represents companies involved in proxy contests, and has assisted clients with fidelity bond claims and internal investigations. Prior to practicing law,...