A Federal Accounting Standards Board proposal could require credit unions to put more money aside into loan loss allowances.
Issued Dec. 20, the proposed model would require an “expected credit loss” measurement, replacing the current model that requires a loss to be actually incurred before recognized.
Credit union accounting consultant Mike Sacher told Credit Union Times the proposal is “a hot topic” in his business, and said if the standard becomes final, it would have a significant impact on credit union financials.
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He will lead a webinar Wednesday on the proposal in partnership with Callahan and Associates.
He said in a Callahan opinion piece posted on the firm’s website that credit unions would have to evaluate not only past and current events, but also make “reasonable and supportable” forecasts to gauge future collectability when measuring ALL. The increased ALL balances will put a strain on net worth, he added.
FASB Chairman Leslie F. Seidman said in a release the proposal intends to provide “more timely recognition of expected credit losses and more transparent information about the reasons for any changes in those estimates.”
The accounting board is accepting comments on the proposal through April 30.