Hot Topic | December 2019

CECL may affect commercial company guarantees

Guarantees provided by a range of companies, including commercial companies, may be in the scope of the credit impairment standard. Review this Hot Topic to evaluate if you are affected by the credit impairment standard.

Applicability

  • Companies that provide guarantees that create off-balance sheet credit exposure

Mandatory effective dates and early adoption provisions:

The FASB has issued guidance deferring the effective dates for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and other private companies, including not-for-profits and employee benefit plans.

  Effective date for calendar year-end entity
Entity Prior New
SEC filers that are not eligible to be smaller reporting companies

Jan 1, 2020

Jan 1, 2020

SEC filers that are eligible to be smaller reporting companies 

Jan 1, 2020

Jan 1, 2023

Public business entities that are not SEC filers

Jan 1, 2021

Jan 1, 2023

All other entities, including not-for-profits and employee benefit plans

Jan 1, 2022

Jan 1, 2023

 

Key impacts

  • Guarantees that create credit off-balance sheet credit exposure, but are not accounted for as either derivatives or insurance, are in the scope of the credit impairment standard.
  • Guarantees create off-balance sheet credit exposure if they require the guarantor to make a payment due a failure of another company to satisfy its required payment obligation.
  • Under the credit impairment standard, a company that has provided a guarantee recognizes a liability for the expected credit losses related to the contingent obligation. While the impact of adopting the credit impairment standard will depend on the company’s previous accounting policies, the effect of adoption is recognized through a cumulative-effect adjustment to retained earnings.

Report content

  • Key impacts
  • Scope and examples
  • Accounting
  • Transition considerations

Related content

 

 

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