FASB publishes two updates on CECL standard affecting TDRs, vintage disclosures

The current expected credit losses (CECL) accounting standard has been updated with expanded disclosures and improved accounting, particularly for troubled debt restructurings (TDRs) for those that have adopted the standard and gross writeoffs of vintage disclosures, the industry group that maintains the rule said Thursday.

According to the Financial Accounting Standards Board (FASB), the changes to the CECL accounting standard are intended to improve the decision usefulness of information provided to investors about certain loan refinancings, restructurings, and writeoffs. According to the group, the changes create a single model for loan modification accounting by creditors while providing improved loan modification and writeoff disclosures.

FASB said that the update (officially referred to by the group as an accounting standards update [ASU]) eliminates the accounting guidance for TDRs by creditors that have adopted CECL while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.

The accounting group said it made the update after hearing from investors and others that measurement of expected losses under the CECL model already incorporates losses realized from restructurings that are TDRs and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications. Investors and other stakeholders had questioned the relevance of the TDR designation and “the decision usefulness of disclosures about those modifications.”

The gross writeoffs for vintage disclosures update requires that a public business entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases. Investors had told the group that the disclosures requirement was an “essential input” to their analysis.

The CECL accounting standard has proven to be somewhat controversial, as banks and credit unions have complained about the costs of implementation outweighing the benefits, no material change resulting in in banks’ allowance for loan and lease losses balances, and that additional guidance, communications, and training on CECL are needed.

FASB Expands Disclosures and Improves Accounting Related to the Credit Losses Standard