NORWALK, Conn. -

The Financial Accounting Standards Board (FASB) looked to reinforce its position concerning the upcoming mandates placed on banks, credit unions and finance companies in connection with reserving for losses, emphasizing the changes can be implemented without incurring “significant costs.”

Last week, FASB issued a proposed Accounting Standards Update (ASU) that included amendments designed to address issues raised by stakeholders, which have triggered proposals by federal lawmakers who are looking to delay these significant accounting changes.

To recap, the Financial Accounting Standards Board (FASB) is looking to ensure that financial institutions have solid measures in place to ensure they have appropriate reserves for any future losses based on the life of each auto loan. As a result, the board has instituted its new Current Expected Credit Loss model (CECL).

The new model will require higher levels of loan loss reserves and lead to changes in lending practices and portfolio management. It will also require a significant amount of data capture, analysis and modeling to meet the implementation deadline of Dec. 15.

According to the update, FASB sought to address four issues along with sharing a summary of its amendments and proposals. The rundown included:

Issue No. 1: Negative allowance for purchased financial assets with credit deterioration

Summary: The proposed amendments would clarify that an entity should include expected recoveries of the amortized cost basis previously written off or expected to be written off in the valuation account for purchased financial assets with credit deterioration (PCD). The proposed amendments also would clarify that recoveries or expected recoveries of the unamortized noncredit discount or premium should not be included in the allowance for credit losses.

Issue No. 2: Transition relief for troubled debt restructurings

The proposed amendments would provide transition relief by permitting entities to adjust the effective interest rate on existing troubled debt restructurings (TDRs) using prepayment assumptions on the date of adoption rather than the prepayment assumptions in effect immediately before the restructuring.

Issue 3: Disclosures related to accrued interest receivables

The proposed amendments would extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis.

Issue No. 4: Financial assets secured by collateral maintenance provisions

The proposed amendments would clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient.

“The amendments in this proposed update include items brought to the board’s attention by stakeholders. The proposed amendments would clarify, correct, and improve the guidance related to the amendments,” board members said. “Therefore, the board does not anticipate that entities will incur significant costs as a result of these proposed amendments.

“The proposed amendments would provide the benefit of improving the consistent application of GAAP by clarifying guidance that already exists within GAAP,” they added.