NCUA issues quarterly update for simplified CECL tool; CECL kicks in for most on Jan. 1

The Simplified CECL Tool for credit unions – CECL being “current expected credit losses” – has been updated for December 2022 as the effective date for CECL nears for most credit unions.

The National Credit Union Administration, in an “NCUA Express” message to subscribers, said the update includes the latest life-of-loan, or weighted average remaining maturity factors, as well as “minor enhancements.”

“For most credit unions, CECL will become effective January 1, 2023,” the agency noted. “For credit unions that plan to use the Simplified CECL Tool, the December release can be used to determine the day-one adjustment to undivided earnings, as required by CECL implementation guidance. For these credit unions, the day-one adjustment will be recorded effective January 1, 2023, and will be reported in the March 2023 Call Report.”

The NCUA notes that the Simplified CECL Tool was developed primarily for credit unions with less than $100 million in assets. It said credit unions can use the tool – with this update and future quarterly updates – to estimate their allowance for credit losses on loans and leases. It said quarterly updates will be issued so credit unions can use them before they close their books and before they submit call reports to the agency.

The tool is aimed at easing credit unions’ adherence to the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 326 (Financial Instruments–Credit Losses). But while ASC 326 “allows entities to use judgment in determining appropriate and relevant information and estimation methods, a credit union’s management is responsible for ensuring the ACL conforms with [generally accepted accounting principles] and adequately covers risk,” the agency notes on its website.

More resources are linked on the agency’s Simplified CECL Tool web page.