Industry Insights

AICPA Conference Addresses Hot Topics for Financial Services

October 2015
Author:  Mary Anne Pipkin

Mary Anne Pipkin

Partner

Tax

Financial Services

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The American Institute of CPAs (AICPA) recently held its annual National Conference on Banks & Savings Institutions in Washington, D.C., with nearly 1,400 attendees from public accounting firms, public and privately held banks and regulatory agencies. The conference focused on accounting, regulatory and industry issues affecting banks. Here are some of the common themes from this year’s conference of particular interest to community banks.

CECL Model

Once again, discussion of the Current Expected Credit Loss (CECL) model dominated the conference. This topic was featured in presentations by the federal regulators chief accountants’ panel and representatives from the Securities and Exchange Commission and the Financial Accounting Standards Board (FASB) as well as various industry panels. Although the changes are still in the proposal stage with FASB, the standard is expected to be finalized before the end of 2015.

Several presenters discussed the transition from the current allowance for loan and lease losses (ALLL) model to the new CECL model. Banks were cautioned to continue with the current incurred loss ALLL methodology until the CECL model is effective. Banks should not build reserves in anticipation of CECL. The most robust discussion centered on banks’ ability to gather enough detailed information to implement CECL’s required modeling. Regulators indicated the size of the bank matters, since they don’t anticipate smaller banks having the same level of sophistication with the modeling as the larger banks. However, internal resources often are limited at community banks and many are struggling with outsourcing versus attempting to create models internally.

The general consensus is that all banks need to be familiar with the provisions of the new standard and should begin formulating a plan. Banks were encouraged to discuss proposed changes with external auditors, peer banks and regulators. Data likely will be obtained from sources not previously used in financial reporting, so banks will need to consider controls and processes related to these new data sources.

On a related topic, banks were encouraged to take a closer look at documentation of their qualitative factors under the current ALLL model. Banks were reminded that qualitative factors should be directly linked to management’s analysis of the current internal and external factors affecting historical loss levels in their specific institution. Banks also were reminded that not all example factors would be applicable to every bank or loan type.

Private Company Reporting

Following the formation of the Private Company Council (PCC) in May 2012, several accounting standards updates have been issued that apply only to “private companies.” Updates of particular interest to banks include accounting for goodwill and identifiable intangible assets in a business combination. Both of these are FASB agenda items for public banks, but the application for private banks already has been issued.

There has been some confusion as to whether a bank would qualify as private due to call report filing requirements. Banking regulators made it clear at this year’s conference that certain banks are allowed to adopt PCC standards. Filing of the call report doesn’t in itself cause a bank to be considered a public entity. Call report instructions are to be updated to provide additional clarifying guidance.

Among other criteria, any entity with one or more securities not subject to contractual restrictions on transfer is considered public if it also is required by law, contract or regulation to prepare U.S. generally accepted accounting principles financial statements. Use of a broker to effect trades generally would mean the securities are traded on an over-the-counter market, including brokered deposits. An insured institution with $500 million or more in total assets required to file audited financial statements under Part 363 of the Federal Deposit Insurance Corporation regulations generally would be considered public.

Proposed Call Report Changes

The Federal Financial Institutions Examination Council issued a press release September 8, 2015, soliciting comments on its community bank call report burden-reduction initiative. The comment period will end in mid-November, with proposed revisions taking effect in either December 2015 or March 2016.

Proposed revisions include deletions of certain existing data items on other-than-temporary impairment, troubled debt restructurings and loans covered by loss-sharing agreements. Increases in dollar reporting thresholds for itemizing and describing components of certain items also are proposed. Exempting smaller banks from reporting items of limited applicability is the final proposed recommendation.

Other Topics

Other topics of interest addressed during the 2015 conference include:

  • Pushdown accounting – Within certain parameters, an acquired institution may elect to apply or not apply pushdown for transactions occurring on or after October 1, 2014.
  • BASEL III – Discussions are ongoing about how much capital is enough.
  • COSO 2013 – Representatives from banks that have already adopted the new framework discussed lessons learned.

For more information on how these and other issues could affect your institution, contact your BKD advisor or join us at one of our upcoming BKD Financial Services Symposiums.

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