United States

Proposed elimination of certain guidance for savings and loans


The Financial Accounting Standards Board (FASB) recently issued proposed Accounting Standards Update (ASU), Technical Corrections and Improvements to Topic 942, Financial Services – Depository and Lending – Elimination of Certain Guidance for Bad Debt Reserves of Savings and Loans, which, if finalized, would eliminate the guidance:

  • In Subtopic 942-740 of the FASB’s Accounting Standards Codification (ASC) on the calculation of deferred taxes on bad debt reserves of savings and loans that arose after December 31, 1987. FASB Statement 109, Accounting for Income Taxes, stated that a deferred tax liability was not recognized for temporary differences related to bad debt reserves of U.S. savings and loans (and other qualified thrift lenders) that arose in tax years beginning before December 31, 1987, unless it became apparent that those temporary differences would reverse in the foreseeable future. A deferred tax liability was required to be recognized for bad debt reserves that arose in tax years beginning after December 31, 1987 (that is, the amounts in excess of the base-year amount). The Small Business Job Protection Act of 1996 repealed the bad debt reserve method of accounting for thrift savings associations. Deferred taxes that were recognized on bad debt reserves beginning after December 31, 1987 were required to be paid over a six-year period beginning in 1996. Certain thrift savings associations that retained a substantial amount of mortgage lending could defer payment for two years. The FASB believes that, considering the delayed repayments, all deferred taxes related to the post-1987 bad debt reserves should have been recaptured in full by 2008. Therefore, the guidance in Subtopic 942-740 is no longer relevant.
  • Related to Comptroller of the Currency’s Banking Circular 202, Accounting for Net Deferred Tax Charges, which was issued in 1985 and limited the net deferred tax debits that could be carried on a bank’s statement of condition for regulatory purposes to the amount that would be coverable by the net operating losses carrybacks. Circular 202 has been rescinded, making the ASC guidance related to it no longer relevant.

The proposed ASU is available for comment until August 28, 2017.