Community Bankers of Iowa Monthly Banker Update January 2014 | Page 13

(Adverse Accounting continued from previous page) Another solution ICBA has proposed an alternative to the current expected credit-loss model that represents a common sense approach for community banks while achieving FASB’s goal of recognizing credit losses sooner in the credit cycle. The ICBA approach would exempt institutions below $10 billion in total consolidated assets from adopting the proposed current expected credit-loss model outright. Instead, these institutions would employ alternative methods that encourage simplicity to assess the adequacy of their loanloss reserves. Under ICBA’s alternative model, credit losses would be recognized based exclusively on a bank’s historical loss experience for similar assets over a pre-defined loss emergence period. As the loss emergence period develops for an originated or purchased asset, losses would be recognized ratably using a common sense methodology. Once an actual impairment event occurs where the bank determines that a credit loss is probable, the bank would measure an actual impairment loss similar to how impairment losses on loans are measured today. This model is superior to the model proposed by FASB because it’s simple to understand, implement, manage, audit and examine, while also meeting the board’s goal of building higher reserves to better protect against bad economic times. Debate on this proposal continues as FASB considers feedback from interested parties, including community banks. Deliberations could wrap up early this year, with final guidance being released later in 2014. ICBA has been at the forefront of this issue with its comments, a petition supporting the ICBA common sense alternative, options for community bankers to provide comments to FASB, educational calls with members and meetings with banking regulators and FASB’s board. Stay with ICBA to follow the latest developments as the FASB considers this and other accounting changes that will affect community bank accounting. James Kendrick ([email protected]) is ICBA’s vice president, Accounting and Capital Policy. CBI Banker Update | JANUARY 2014 13