A technical correction for calculating and reporting current expected credit loss (CECL) transition amounts on credit union call reports was issued Wednesday by the federal regulator of the cooperatives.
“The transition to the CECL methodology recognized the need to phase in the CECL day-one adjustment on the net worth ratio,” the National Credit Union Administration (NCUA) said in an alert to credit unions it supervises. “As a result, the final rule phased in the day-one effects of adopting the CECL accounting standard over a three-year transition period.” That period includes 12 quarters.
The agency said credit unions should calculate the CECL transition amount for quarters 4 through 12 as the difference between the credit union’s retained earnings as of the beginning of the fiscal year in which the credit union adopts CECL, adjusted for any restatement of the initial CECL adoption amount; and the credit union’s retained earnings as of the closing of the fiscal year immediately before the credit union’s adoption of CECL.
Following those calculations, the NCUA said, would ensure computation alignment with the transition rule’s intent.
The NCUA said that for credit unions that adopted CECL in the first quarter of 2023, any corrected CECL transition amount is reported in Schedule G, Capital Adequacy Worksheet, as described in the December 2023 Call Report Instructions.
For most credit unions, the CECL accounting treatment became effective Jan. 1 of this year. Credit unions using the agency-developed “Simplified CECL Tool” determined the day-one adjustment to undivided earnings, as required by CECL implementation guidance. For those credit unions, the day-one adjustment was recorded effective Jan. 1, 2023, and was reported in the March 2023 Call Report.
The tool was developed primarily for credit unions with less than $100 million in assets. NCUA has said that credit unions could use the tool – with quarterly updates – to estimate their allowance for credit losses on loans and leases.