Pub. 2 2012-2013 Issue 3

8 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S FEATURE ARTICLE “As currently presented, the CECL model would not result in convergence with International Financial Reporting Standards, which may be viewed as a concern.” FASB Continues Work on Credit Impairment Model O nAugust 22, 2012, the Financial Accounting Standards Board (FASB)made some key de- cisions regarding an alternative impairment model and introduced the framework for a new model. This new model is referred to as the Current Expected Credit Losses (CECL) model, and although this model is no longer be- ing jointly developed, it does incorporate several of the key decisions jointly reached by the boards. Background Nearly three years ago, FASB and the Inter- national Accounting Standards Board (IASB) undertook the monumental project of develop- ing a new model to address concerns with the current accounting and recognition of credit impairment. This led to the jointly developed three-bucket credit impairmentmodel. However, in early August, FASB scrapped thismodel due to significant concerns regarding the understand- ability, operability and auditability of themodel. Where We Are Going Although the CECL model is still in devel- opment and all decisions thus far are tentative, the following list provides some insight into key technical features of FASB’s CECL model to date: 1. Unlike the three-bucket model’s dual- measurement approach, the CECL model is based on a single measurement objective. 2. Impairment losses will be based on an estimate of expected credit losses. This differs from current GAAP application, which is based on the principal of incurred (or known) credit losses. The model removes the “probable” thresh- old for recognizing losses. KRISTINA LOWE CPA BKD, LLP