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CARES Act would provide optional temporary relief from CECL accounting

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30 Mar 2020

On 27 March 2020, US President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides relief from certain accounting and financial reporting requirements under U.S. GAAP. However, until actions are taken by the SEC or the FASB, the provisions of the CARES Act are not amendments to US GAAP.

Section 4014 of the CARES Act offers optional temporary relief from applying the FASB’s current expected credit losses (CECL) standard (ASU 2016-13) for certain entities. Any guidance developed by the SEC or FASB to address the CARES Act’s impact on US GAAP would most likely take into account both the scope and length of any optional deferral, will likely take into account whether any deferral should apply to all entities that were otherwise required to adopt the CECL, and would more clearly define the date of adoption if an entity chose the deferral. For more information, see Deloitte's related Heads Up newsletter as well as the CARES Act, which is available on the US Senate's website.

Other than US Senate and Congress, the IASB has concluded that the existing requirements within IFRS 9 Financial Instruments (including the IASB's CECL model) need not be changed, removed nor added to. On Friday, the IASB only released a statement to support the consistent application of requirements in IFRS 9.

The IASB's position is supported by several other communications on the application of IFRS 9 during the COVID-19 crisis.

  • The Office of the Superintendent of Financial Institutions (OSFI) in Canada has released a statement that includes guidance on Applying IFRS 9 in extraordinary circumstances that will allow companies to remain compliant with IFRS as issued by the IASB;
  • the Prudential Regulation Authority (PRA) of the Bank of England has released a statement Covid-19: IFRS 9, capital requirements and loan covenants that offers an annex with guidance consistent with IFRS 9 to assist firms in making well-balanced and more consistent ECL estimates and in determining how to treat payment holidays and similar schemes for accounting and regulatory purposes;
  • the French Autorité des Marchés Financiers (AMF) has released guidance (in the French language only) noting that the general measures implemented allowing, among other things, payment suspensions or deferrals or the granting of additional appropriations do not mechanically constitute an indicator of a significant increase in the credit risk of the financial assets concerned;
  • the German Institut der Wirtschaftsprüfer (IDW) has released comprehensive guidance on IFRS 9 that is also available in an (abridged) English language translation; and
  • the Malaysian Accounting Standards Board (MASB) has countered calls for a temporary exemption from MFRS 9 (the Malaysian equivalent of IFRS 9) with a statement reassuring its constituents "that the principle-based nature of the Malaysian Financial Reporting Standards (MFRS) Framework requires and allows for judgement in addressing the accounting challenges arising from COVID-19".

All statements agree that IFRS 9 is principles-based and requires the use of experienced credit judgement and that the current situation does not lead to an undifferentiated, automatic transfer of financial instruments from Level 1 to Level 2 or even Level 3.

Earlier last week, ESMA hat already concluded that the principles-based nature of IFRS 9 includes sufficient flexibility to faithfully reflect the specific circumstances of the COVID-19 outbreak and the associated public policy measures.

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