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April 28, 2020

Updated Info on PPP Forgiveness, EIDL & Main Street Lending Loan Programs

Updated Info on PPP Forgiveness, EIDL & Main Street Lending Loan Programs
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On Friday, April 24th, President Trump signed a new bill providing a much-needed, additional $370 billion into the PPP and EIDL lending programs. Of the $370 billion, $60 billion is to replenish the Economic Injury Disaster Loan program, and $250 billion for the Paycheck Protection Program loans, with $60 billion set aside for community banks and community development financial institutions (CDFIs). While the initial round of funding under the CARES Act of $349 billion lasted for about a week before it dried up, this round is projected to last for just four to six days. Here’s what you need to know for a chance to receive these benefits:

PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS
We covered the Paycheck Protection Loan Program in detail in this article . Below is important additional information.
Hopefully, you have either made it through the mad-dash for the funds and had your loan approved or will get funded in this next round. With that in mind, here are our recommendations, based on currently known information, that gives you best the chance for maximum PPP loan forgiveness.

KEEP CLEAR RECORDS
We recommend using a separate bank account for the PPP funds to create an easy accounting trail. Maintain documents verifying the number of full-time equivalent employees on payroll as well as their salaries/wages for the period during which the loan was used to pay them. This could include payroll reports from a payroll provider, payroll tax filings, income/payroll/unemployment insurance filings from your state and paperwork that verifies retirement and health insurance contributions. In addition, have documents available that show payments of mortgage interest, rent and utilities.

MAKE NOTE OF THE TIMELINE
Funds must be spent within 8 weeks of receiving them. At the end of this 8-week period, you can apply for forgiveness through your bank.

ALLOCATE THE FUNDS CORRECTLY
At least 75% of the funds need to be used for payroll costs, with the maximum annual salary of $100k per employee. Forgiveness appears to be calculated on a cash-basis, which means accrued payroll due after the 8-week period will not qualify. This does not include the employer’s share of social security taxes. The IRS has agreed to defer the 6.2% employer share owed as of March 27, 2020, though the date on which the lender issues a decision on loan forgiveness.
The remaining 25% of the funds can be used for rent, mortgage interest (but not prepayments or payments towards the principal), utilities, continuation of healthcare benefits for those on leave, and interest payments on any debt obligation incurred before February 15th, 2020.

LOAN FORGIVENESS REDUCTION
To maintain 100% forgiveness, you will need to either keep your payroll as it was before February 15th, 2020 or during the same period in 2019, or hire back all laid-off employees, and undo wage reductions by the end of the PPP “covered period” on June 30th. The total amount forgiven will be reduced in proportion to the reduction in head-count, or wages decreased by more than 25%.

ECONOMIC INJURY DISASTER LOAN PROGRAM
The SBA will directly provide loans up to $2 million to small businesses and non-profits that have been severely impacted by COVID-19. An additional $60B has been made available in this last round. This is a good option for businesses with high non-payroll expenses. Here is how it works:

  • Interest rates are 2.75% for nonprofits and 3.75% for businesses, with a maximum term of 30 years.
  • Loans over $200,000 must be guaranteed by an owner with at least 20% interest in the company. We expect this requirement to be waived for schools.
  • Eligible businesses can request an advanced grant up to $10,000, calculated at $1,000 per employee. This grant does not need to be paid back, even if your organization is denied the EIDL loan. Note that if you get an EIDL advance, and later apply for a PPP loan, the EIDL will be subtracted from the amount that gets forgiven.
  • You can apply for this loan directly from SBA.gov

Note: At this moment the SBA is not accepting new applications and are only processing applications that were already submitted.

MAIN STREET LENDING PROGRAM
The Main Street Lending Program, an additional program created by the Federal Reserve, is a great alternative to the SBA programs which are running low in funds. This $600B program is designed to help banks give money more freely to businesses in need of a loan by purchasing a large portion of the loan from the bank, freeing the banks of most of the risk. The Federal Reserve will buy up to 95% of the loan from the bank, leaving just 5% with the bank that originated the loan. Here is how it works:

  • The program is available to all businesses with fewer than 10,000 employees or with revenues of less than $2.5 billion.
  • The term of these loans is four years, and loan amounts generally range between $1 million and $25 million. The loan amount is calculated as 4x earnings before interest, taxes, depreciation and amortization (EBITDA) less any debt. The minimum loan amount in $1 million.
  • Interest rates on these loans will be anywhere from 2.5% to 4%, with a repayment term of four years.
  • These loans cannot be used to pay off any other existing debt.
  • Once you have a loan, there are several requirements you must meet. First, all efforts must be made to maintain payroll and retain workers through the pandemic and economic crisis. Second, you must meet all compensation, stock repurchase and dividend restrictions that apply to direct loans under the CARES Act. Finally, there are several salary restrictions for employees or officers making more than $425,000.
  • This loan is available through your bank or local lender, and you are still eligible if you have made use of other SBA loans, such as the PPP.

We will continue to keep you informed as information becomes available. Please don’t hesitate to contact us with questions or concerns.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.

April 27, 2020

Going, Going, Gone: Going Concern Assessments in the Midst of COVID-19

Going, Going, Gone: Going Concern Assessments in the Midst of COVID-19
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The novel coronavirus (COVID-19) pandemic has adversely affected the global economy. Companies of all sizes in all industries are faced with closures of specific locations or complete shutdowns; employee layoffs, furloughs or restrictions on work; liquidity issues; and disruptions to their supply chains and customers. These negative impacts have brought the “going concern” issue to the forefront.

One-year look-forward period

Financial statements are generally prepared under the assumption that the entity will remain a going concern. That is, it’s expected to continue to generate a positive return on its assets and meet its obligations in the ordinary course of business.

Under Accounting Standards Codification Topic 205, Presentation of Financial Statements — Going Concern, the continuation of an entity as a going concern is presumed as the basis for reporting unless liquidation becomes imminent. Even if liquidation isn’t imminent, conditions and events may exist that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern.

Management is responsible for evaluating the going concern assumption. Going concern issues arise when it’s probable that the entity won’t be able to meet its obligations as they become due within one year after the date the financial statements are issued — or available to be issued. (The alternate date prevents financial statements from being held for several months after year end to see if the company survives.)

Making the call

The going concern assumption is evaluated when preparing annual and interim financial statements under U.S. Generally Accepted Accounting Principles (GAAP). The evaluation is based on qualitative and quantitative information about relevant conditions and events that are known (or reasonably knowable) at the time the evaluation is made.

Examples of warning signs that an entity’s long-term viability may be questionable include:

  • A reduction in sales due to store closures,
  • A shortage of products and supplies used in manufacturing operations,
  • A decline in value of assets held by the company,
  • Recurring operating losses or working capital deficiencies,
  • Loan defaults and debt restructuring,
  • Denial of credit from suppliers,
  • Disposals of substantial assets,
  • Work stoppages and other labor difficulties,
  • Legal proceedings or legislation that jeopardizes ongoing operations,
  • Loss of a key franchise, license or patent,
  • Loss of a principal customer or supplier, and
  • An uninsured or under-insured catastrophe.

If management concludes that there’s substantial doubt about the entity’s ability to continue as a going concern, it must consider whether mitigation plans can be effectively implemented within the one-year look-forward period to alleviate the going concern issues.

Reporting going concern issues

Few businesses will escape negative repercussions of the COVID-19 crisis. If your business is struggling, contact us to discuss the going concern assessment. Our auditors can help you understand how the evaluation will affect your balance sheet and disclosures.

April 22, 2020

Recommended Documentation for Emergency Paid Sick Leave & Extended FMLA

Recommended Documentation for Emergency Paid Sick Leave & Extended FMLA
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HR 6201: Family First Coronavirus Response Act is now in effect, extending provisions for Emergency Paid Sick Leave and Family Medical Leave. Along with the many billions allocated to protect families, workers and small businesses, funds were also apportioned to ensure monies are utilized appropriately. This means oversight will be strong and audits likely. With this in mind, we recommend keeping detailed documentation as you make use of the available resources. Our specific suggestions are listed below, but first, a recap:

 

HR 6201: FAMILY FIRST CORONAVIRUS RESPONSE ACT:

As of April 1, employees who cannot work due to COVID-19 related illness and/or quarantine are eligible for 10 days of Emergency Paid Sick Leave, and 2/3 of pay to care for ill family or a child without childcare for up to 12 weeks. This provision is available for organizations with under 500 employees, who can then offset the costs by claiming a Social Security tax credit. If the credit exceeds the employer’s accumulated Social Security tax for the calendar quarter, the excess will be issued in the form of a refund from the IRS.

For full details on EPSL and FMLA expansion, please see our previous article

 

RECOMMENDED DOCUMENTATION

Create a system to track and report leave.

Create categories to differentiate the reasons for COVID-19 related leave.

·     SELF SICK: Employees who have been diagnosed with or tested positive for COVID-19, or who have been told to quarantine/isolate because someone in their family is ill with COVID-19 or tested positive, or had contact with someone who did. These employees are eligible up to 80 hours and full pay max $511/day (for part timers, the time is prorated to usual hours worked).

·     SICK FAMILY: Employees taking leave to care for someone in their household who has been diagnosed with COVID-19 or have been told to quarantine. Employees in this category are eligible for 2/3 pay up to $200 a day, for up to 80 hours.

·     CHILDCARE/FMLA: Employees caring for child whose school or usual caregiver is unavailable for COVID-19 related reasons, 2/3 pay up to $200 a day, up to 12 weeks (less any time already taken under the FMLA).

 

Collect Appropriate Documentation

We recommend compiling the following documentation for all the categories above.

1.  Employee’s name

2.  Dates for which leave is requested

3.  Written statement from the employee stating that they are unable to work, including by means of telework, because of the qualified reason for leave

 

Request Written Support

Employees taking sick leave should provide:

1.  The name of the government entity that issued the quarantine or isolation order or the name of the health care provider who advised self-quarantine due to concerns related to COVID–19.

2.  A copy of the quarantine or isolation order and/or copy of a note from the doctor, if available.

 

Employees taking leave to care for another should provide:

1.  The name of the person under care and their relation to the employee.

2.  The name of the government entity that issued the quarantine or isolation order or the name of the health care provider who advised self-quarantine due to concerns related to COVID–19.

3.  A copy of the quarantine or isolation order and/or copy of a note from the doctor, if available.

 

Employees taking leave to care for their child due to child’s daycare or school being closed, or the care provider being unavailable, should provide:

1.  The name and ages of children being cared for.

2.  The name of the school, place of care, or child care provider that has closed or become unavailable.

3.  If available, documentation showing the closure and/or statement as to why the usual child care provider is unavailable due to COVID-19 reasons.

4.  A statement that no other person is available to provide childcare, such as an unemployed partner.

5.  With respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.

We will continue to keep you informed as information becomes available. As always, we are here to help implement these changes. Please don’t hesitate to contact us with questions or concerns.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor. 

April 22, 2020

New COVID-19 Law Makes Favorable Changes to “Qualified Improvement Property”

New COVID-19 Law Makes Favorable Changes to “Qualified Improvement Property”
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The law providing relief due to the coronavirus (COVID-19) pandemic contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings. This is referred to as qualified improvement property (QIP). You may recall that under the Tax Cuts and Jobs Act (TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be deducted over a 39-year period rather than entirely in the year the QIP was placed in service. This was due to an inadvertent drafting mistake made by Congress.

But the error is now fixed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. It now allows most businesses to claim 100% bonus depreciation for QIP, as long as certain other requirements are met. What’s also helpful is that the correction is retroactive and it goes back to apply to any QIP placed in service after December 31, 2017. Unfortunately, improvements related to the enlargement of a building, any elevator or escalator, or the internal structural framework continue to not qualify under the definition of QIP.

In the current business climate, you may not be in a position to undertake new capital expenditures — even if they’re needed as a practical matter and even if the substitution of 100% bonus depreciation for a 39-year depreciation period significantly lowers the true cost of QIP. But it’s good to know that when you’re ready to undertake qualifying improvements that 100% bonus depreciation will be available.

And, the retroactive nature of the CARES Act provision presents favorable opportunities for qualifying expenditures you’ve already made. We can revisit and add to documentation that you’ve already provided to identify QIP expenditures.

For not-yet-filed tax returns, we can simply reflect the favorable treatment for QIP on the return.

If you’ve already filed returns that didn’t claim 100% bonus depreciation for what might be QIP, we can investigate based on available documentation as discussed above. We will evaluate what your options are under Revenue Procedure 2020-25, which was just released by the IRS.

If you have any questions about how you can take advantage of the QIP provision, don’t hesitate to contact us.

April 20, 2020

Donor Care During the COVID-19 Pandemic

Donor Care During the COVID-19 Pandemic
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One of the many challenges of operating a not-for-profit organization during the coronavirus (COVID-19) pandemic is that just when you desperately need financial support, many donors are unable to help. Widespread unemployment, stock market volatility and general uncertainty make even dependable donors reluctant to part with their money.

Then there’s the fact that donors are receiving a staggering number of charitable solicitations right now. If your nonprofit doesn’t directly serve constituencies harmed by COVID-19, your appeals are likely to go to the bottom of donors’ piles. Here are some ideas for keeping your organization’s needs top of mind.

Avoid mass appeals

Now is generally not the time to make mass appeals for donations. If you do contact your entire mailing list, use the opportunity to express concern for your supporters’ well-being and to update them on how your organization is faring under the circumstances. Also let donors know that charitable donations made in 2020 are deductible up to $300, even if donors don’t itemize.

To keep supporters engaged, stay on top of your social media accounts. Use Twitter, Facebook and other platforms to announce program suspensions and reopening dates and to share success stories — either recent or, if your nonprofit is temporarily closed, from the past.

Build support

Reach out to significant donors in person. Obviously, face-to-face meetings are out of the question, so give major supporters a phone call or arrange for a videoconference. Be sensitive to donors’ financial challenges and prepare to be flexible. If donors express the desire to help but can’t commit to an amount right now, suggest they might want to make a multi-year gift or include your nonprofit in their estate plans.

Donors might also be able to provide your group with professional services — such as PR expertise or legal advice — or be willing to contribute an item to an online fundraising auction. It’s a great time to learn more about major donors and ask them how they want to help, now and in the future. You may be surprised by their answers.

Chances are these supporters are well established in the community and have friends and colleagues they can introduce to your nonprofit. If these well-connected donors aren’t already on your board, invite them to become members — or ask them to chair a future event.

Resist the temptation

Although you may be tempted to throw yourself on the mercy of donors, desperate appeals may not be wise right now. Donors generally want to invest in fiscally sound nonprofits that will be around for the long haul. So long as your nonprofit has adequate operating reserves and a contingency plan, you should be able to weather the current storm. Contact us if you need help getting over any hurdles in the meantime.

April 17, 2020 BY Simcha Felder

Adversity vs. Opportunity

Private: Core Value: Development
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The term “pivot” has become a buzzword for a significant business change, ranging from mild to dramatic. Entrepreneurs don’t pivot for the fun of it. A pivot is intended to help a business recover when other factors make the original business model unsustainable. Oftentimes, entrepreneurs face a tough decision in a situation with mounting challenges; they may be facing insurmountable competition or trying to survive a tough period. If a business can’t survive the way it is, a pivot is sometimes the only logical option.

Pivots are common. According to venture capitalist Fred Wilson, “Of the 26 companies that I consider realized or effectively realized in my personal track record, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold.” Though the sample size is small, this suggests a two‐thirds probability that a business will require a pivot at some point to succeed.

While the world is currently experiencing a sudden and devastating situation, this challenge is certainly not unprecedented in the business world. Sudden upheavals in business have become of a hallmark of the age of technological advancement we are living in.

The advent of the Internet took some businesses down, yet left others stronger. When Starbucks popped up, many in the coffee business went down, but others revamped and found a loyal, larger clientele. Did Uber ride into town and take down the taxi industry or did the taxis’ inability to change their way of doing business play a large role?

According to Simon Sinek, business owners should avoid slipping into survival mode when what they need is reinvention mode. Instead of asking, “How will we do what we do?!” What you need to ask is, “How will we do what we’re doing in a new world?” A reinvention mindset asks, “How will we change to get through this? And what will our business look like in a new world?” It is optimistic. It sees opportunity in imaging what we can be and what we can contribute in a new way.

Examples are already cropping up: A fine-dining establishment that found a way to sell and ship high-end food products that are not usually available to individuals outside the food industry. Clothing designers who put their staff to work sewing masks and other PPE instead of their usual high‐end designer apparel. These employees are all doing different jobs, but they are all employed in the same business. At the helm of these companies are leaders with vision who inspired buy-in from employees willing and able to pivot from their usual job and adapt to the needs of the company.

If we have learned anything from iTunes vs. the music industry, Blockbuster vs. Netflix, Toys R Us vs. the Internet‐ it is that change is inevitable. Our only choice is to keep moving forward. Can you see the light at the end of the tunnel? That’s the future, and it is bright.

April 13, 2020

Questions to Ask When Making COVID-19 Risk Disclosures

Questions to Ask When Making COVID-19 Risk Disclosures
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Efforts to contain the spread of the novel coronavirus (COVID-19) have led to suspension of many economic activities, putting unprecedented strain on businesses. The Securities and Exchange Commission (SEC) recently issued guidance to help public companies provide investors and other stakeholders with useful, accurate financial statement disclosures in today’s uncertain marketplace.

New disclosure guidance

On March 25, the SEC issued interpretive guidance, Coronavirus (COVID-19), CF Disclosure Guidance: Topic No. 9. It highlights best practices in disclosing the risks and effects of the COVID-19 pandemic.

The guidance recommends using a principles-based disclosure system rooted on the concept of materiality. This means companies should disclose information that a reasonable person would find important in the total mix of information considered when making a decision to sell or buy a company’s stock.

10 questions

The SEC guidance offers the following 10 questions for companies to consider when making COVID-19-related disclosures:

  1. How has COVID-19 impacted your company’s financial condition and results of operations — and how might it impact future operations?
  2. How has COVID-19 impacted your company’s liquidity position and its capital and financial resources? Do you expect to incur any material COVID-19-related contingencies?
  3. How will COVID-19 affect assets on your company’s balance sheet and its ability to account for those assets in a timely manner?
  4. Have there been (or do you anticipate) any material impairments (for example, related to goodwill, intangible assets, long-lived assets, right of use assets and investment securities), increases in allowances for credit losses, restructuring charges, other expenses or changes in accounting judgments?
  5. Have remote working arrangements and other COVID-19-related circumstances adversely affected your company’s ability to maintain operations, including financial reporting systems, internal control over financial reporting, and disclosure controls and procedures? If so, what changes in controls have occurred during the current period?
  6. Have you experienced challenges or resource constraints in implementing your company’s business continuity plans, or do you foresee requiring material expenditures to do so?
  7. Do you expect COVID-19 to affect demand for your company’s products or services?
  8. Will COVID-19 have a material adverse impact on your company’s supply chain or the methods used to distribute products or services?
  9. Will your company’s operations be materially impacted by any constraints or other impacts on its human capital resources and productivity?
  10. Are travel restrictions and border closures expected to have a material impact on your company’s ability to operate and achieve its strategic goals?

This list of open-ended questions isn’t intended to be exhaustive. Each company will need to customize COVID-19-related disclosures using forward-looking information that’s based on assumptions about what may or may not happen in the future. In many situations, the impact will depend on factors beyond management’s control and knowledge.

We can help

The SEC has separately provided 45-day relief for certain reports that need to be filed by public companies. This will give management extra breathing room to assess the evolving situation and estimate the probable effects of the pandemic. Contact us for assistance crafting COVID-19 disclosures in these unprecedented conditions.

April 08, 2020

CARES ACT Changes Retirement Plan and Charitable Contribution Rules

CARES ACT Changes Retirement Plan and Charitable Contribution Rules
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As we all try to keep ourselves, our loved ones, and our communities safe from the coronavirus (COVID-19) pandemic, you may be wondering about some of the recent tax changes that were part of a tax law passed on March 27.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a variety of relief, notably the “economic impact payments” that will be made to people under a certain income threshold. But the law also makes some changes to retirement plan rules and provides a new tax break for some people who contribute to charity.

Waiver of 10% early distribution penalty

IRAs and employer sponsored retirement plans are established to be long-term retirement planning accounts. As such, the IRS imposes a penalty tax of an additional 10% if funds are distributed before reaching age 59½. (However, there are some exceptions to this rule.)

Under the CARES Act, the additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with COVID-19 or is economically harmed by it. Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread-out.

Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules

Depending on when you were born, you generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts — including traditional IRAs, SEP accounts and 401(k)s — when you reach age 70½ or 72. These distributions also are subject to federal and state income taxes. (However, you don’t need to take RMDs from Roth IRAs.)

Under the CARES Act, RMDs that otherwise would have to be made in 2020 from defined contribution plans and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70½ in 2019.

New charitable deduction tax breaks

The CARES Act makes significant liberalizations to the rules governing charitable deductions including:

  • Individuals can claim a $300 “above-the-line” deduction for cash contributions made, generally, to public charities in 2020. This rule means that taxpayers claiming the standard deduction and not itemizing deductions can claim a limited charitable deduction.
  • The limit on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020. Instead, an individual’s eligible contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 is required.

Far beyond

The CARES Act goes far beyond what is described here. The new law contains many different types of tax and financial relief meant to help individuals and businesses cope with the fallout.

April 06, 2020

Cares Act Provides Option to Delay CECL Reporting

Cares Act Provides Option to Delay CECL Reporting
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The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27. Among other economic relief measures, the new law allows large public banks to temporarily postpone the controversial current expected credit loss (CECL) standard. Here are the details.

Updated accounting rules

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in response to the financial crisis of 2007–2008. The updated CECL standard relies on estimates of probable future losses. By contrast, existing guidance relies on an incurred-loss model to recognize losses.

In general, the updated standard will require entities to recognize losses on bad loans earlier than under current U.S. Generally Accepted Accounting Principles (GAAP). It’s scheduled to go into effect for most public companies in 2020. In October 2019, the deadline for smaller reporting companies was extended from 2021 to 2023, and, for private entities and nonprofits, it was extended from 2022 to 2023.

Option to delay

Under the CARES Act, large public insured depository institutions (including credit unions), bank holding companies, and their affiliates have the option of postponing implementation of the CECL standard until the earlier of:

  • The end of the national emergency declaration related to the COVID-19 crisis, or
  • December 31, 2020.

Many public banks have made significant investments in systems and processes to comply with the CECL standard, and they’ve communicated with investors about the changes. So, some may decide to stay the course. But many large banks are expected to take advantage of the option to delay implementation.

Congress decided to provide a temporary reprieve from implementing the changes for a variety of reasons. Notably, the COVID-19 pandemic has created a volatile, uncertain lending environment that may result in significant credit losses for some banks.

To measure those losses, banks must forecast into the foreseeable future to predict losses over the life of a loan and immediately book those losses. But making estimates could prove challenging in today’s unprecedented market conditions. And, once a credit loss has been recognized, it generally can’t be recouped on the financial statements. Plus, there’s some concern that the CECL model would cause banks to needlessly hold more capital and curb lending when borrowers need it most.

Stay tuned

So far, the FASB hasn’t delayed the CECL standard. But the COVID-19 crisis has front-loaded concerns about the CECL standard, prompting critics in both the House and Senate to step up their efforts to block the standard. Contact us for the latest developments on this issue.