Changes and new trends in accounting

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Changes and new trends in accounting

An entity must allocate the noncredit discount or premium resulting from the acquisition of a pool of PCD financial assets to each individual asset in the pool; When using a method to estimate the allowance for credit losses that discounts expected future cash flows, the discount rate used is the rate that equates the purchase price of the PCD asset with the present value of the estimated future cash flows at the acquisition date; and When using a method to estimate the allowance for credit losses other than one that discounts expected future cash flows, the allowance estimate is based on the unpaid principal balance face or par value of the PCD asset.

Has the "collateral-dependent" definition changed in the new accounting standard? The "collateral-dependent" definition has been altered slightly.

Changes and new trends in accounting

The new accounting standard defines a collateral-dependent financial asset as "a financial asset for which the repayment is expected to be provided Changes and new trends in accounting through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the entity's assessment as of the reporting date.

Similar to existing U. GAAP, if an institution uses the practical expedient on a collateral-dependent financial asset and repayment or satisfaction of the asset depends on the sale of the collateral, the fair value of the collateral should be adjusted for estimated costs to sell on a discounted basis.

However, the institution would not need to incorporate in the net carrying amount of the financial asset the estimated costs to sell the collateral if repayment or satisfaction of the financial asset depends only on the operation, rather than on the sale, of the collateral. Example 6 in ASU illustrates one way to implement the collateral-dependent concepts.

Bank F provides commercial real estate loans to developers of luxury apartment buildings.

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Each loan is secured by a respective luxury apartment building. Over the past two years, comparable standalone luxury housing prices have dropped significantly, while luxury apartment communities have experienced an increase in vacancy rates.

At the end of 20X7, Bank F reviews its commercial real estate loan to Developer G and observes that Developer G is experiencing financial difficulty as a result of, among other things, decreasing rental rates and increasing vacancy rates in its apartment building.

After analyzing Developer G's financial condition and the operating statements for the apartment building, Bank F believes that it is unlikely Developer G will be able to repay the loan at maturity in 20X9. Therefore, Bank F believes that repayment of the loan is expected to be substantially through the foreclosure and sale rather than the operation of the collateral.

As a result, in its financial statements for the period ended December 31, 20X7, Bank F utilizes the [collateral-dependent] practical expedient and uses the apartment building's fair value, less costs to sell, when developing its estimate of expected credit losses.

Should institutions use third-party vendors to assist in measuring expected credit losses under CECL? If an institution chooses to use a third-party service provider to assist management with this process, the institution should follow the agencies' guidance on third-party service providers.

As such, the agencies encourage institutions to discuss the availability of historical loss data internally and with their core loan service providers because system changes related to the collection and retention of data may be warranted.

Depending on the estimation method or methods selected, institutions may need to capture additional data and retain data longer than they have in the past on loans that have been paid off or charged off to implement CECL.

Will the agencies establish benchmarks or floors for allowance levels? At the time of adoption, the actual impact of CECL on an institution's allowance levels will depend on many factors. These factors include current and future expected economic conditions, the level of an institution's allowance balances, its portfolio mix, its underwriting practices, and its geographic locations and those of its borrowers.

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Because allowance levels depend on these institution-specific factors, the agencies cannot reasonably forecast the expected change in allowance levels across all institutions.

For similar reasons, the agencies will not establish benchmark targets or ranges of allowance levels upon adoption of CECL or for allowance levels going forward. Will adoption of the new accounting standard impact U.

GAAP equity and regulatory capital? Upon initial adoption, the earlier recognition of credit losses under CECL will likely increase allowance levels and lower the retained earnings component of equity, thereby lowering common equity tier 1 capital for regulatory capital purposes.

The agencies will monitor changes to institutions' regulatory capital due to the adoption of the expected credit loss methodology. Can institutions build their allowance levels in anticipation of adopting CECL?

Institutions must continue to use the existing U. It is not appropriate to begin increasing allowance levels beyond those appropriate under existing U. It is therefore inappropriate to treat CECL as a basis for qualitatively adjusting allowances measured under the existing incurred loss methodology.

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How will the agencies coordinate their efforts to address the implementation of CECL? The agencies will develop supervisory guidance to clarify expectations, but will not provide an approved formula or mandate a single approach that institutions must follow when applying CECL.

The agencies' accounting policy staffs are cataloguing current policy statements, examination materials, reporting forms and instructions, and training programs to determine the revisions needed in response to CECL.

Will the agencies provide support to institutions?

Changes and new trends in accounting

The agencies are performing ongoing outreach to the industry and other stakeholders to understand potential implementation issues and communicate supervisory views. The agencies will use this information to determine the nature and extent of support and other assistance needed.Whatever the measure, the past two decades have been characterized by increasing abuse and diversion of prescription drugs, including opioid medications, in the United States.

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Sep 06,  · Frequently Asked Questions on the New Accounting Standard on Financial Instruments--Credit Losses. The Financial Accounting Standards Board (FASB) issued a new accounting standard, Accounting Standards Update (ASU) No.

, Topic , Financial Instruments - Credit Losses, on June 16, The new accounting standard introduces the current . North South University is the first private university of Bangladesh, It was established in Approved by the University Grants Commission (UGC) of Bangladesh.

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