On April 3, 2020, SEC Chief Accountant Sagar Teotia issued a Public Statement titled “Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19.” In the Public Statement he addresses the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The Cares Act, in Section 4014, provides a deferral for the Current Expected Credit Loss accounting standard (ASC 326) for insured depository institutions and credit unions insured by the National Credit Union Administration. This deferral will end when the national emergency related to the outbreak of COVID-19 ends. The uncertainty as to when the deferral will end presents significant tactical challenges. This deferral has also raised hopes that the FASB might extend the deferral to other entities.
The CARES Act, in Section 4013, also provides relief from troubled debt restructuring accounting for “financial institutions,” a term which is undefined in the Act.
In his Public Statement, Chief Accountant Teotia states:
The CARES Act, which was signed into law by the President on March 27, 2020, allows a limited number of entities the option to temporarily defer or suspend the application of two provisions of U.S. Generally Accepted Accounting Principles (GAAP). OCA has received inquiries from preparers and auditors where the preparer has concluded that election of these narrow and limited options in Sections 4013 and 4014 of the CARES Act would be deemed to be in accordance with GAAP. For those entities that are eligible for, and elect to apply, either of Sections 4013 or 4014 of the CARES Act, the staff would not object to the conclusion that this is in accordance with GAAP for the periods for which such elections are available.
In this environment of uncertainty and hope, the FASB has scheduled a meeting for April 8, 2020 to “Address Standard-Setting Issues During the Coronavirus (COVID-19) Pandemic.” You can read about the issues to be addressed, including “Agenda requests for deferral of standards” in this media advisory.
So, stay tuned!
In addition to the CECL deferral, the Public Statement also addresses:
- the many judgments that may be required due to the disruption and uncertainty created by COVID-19, with a reminder that OCA has “consistently not objected to well-reasoned judgments that entities have made” and that they will “continue to apply this perspective”
- auditing challenges and working with the PCAOB
- coordination with international organizations
- engagement with stakeholders
As always, your thoughts and comments are welcome!