The recently enacted Coronavirus Aid, Relief, and Economic Security Act provides optional temporary relief to insured depository institutions from compliance with Financial Accounting Standards Board Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. (As background, certain public business entities were required to adopt this update on January 1, 2020.) Specifically, Section 4014 of the Act, which outlines the temporary relief, stipulates that no insured depository institution, bank holding company or any affiliate thereof is required to comply with ASU 2016-13, including the current expected credit losses methodology (CECL) for estimating allowances for credit losses, during the period beginning on the date of enactment of the Act and ending on the earlier of December 31, 2020 or the termination of the national emergency concerning COVID-19 declared by the President. This relief is of limited and uncertain benefit to depository institutions, given the unknown timing of when the national emergency will be terminated and therefore the date institutions that take advantage of the relief will need to comply with ASU 2016-13.
It should be noted that this temporary CECL relief does not apply to entities that are not insured depository institutions. Entities are encouraged to stay abreast of future developments related to this relief, including any actions that the FASB may take as a consequence of the Act.