How COVID-19 May Affect Non-Financial Businesses Subject to FASB's Credit Loss Standard

Is your organization subject to the FASB’s new Current Expected Credit Loss (CECL) standard (Topic 326) that went into effect January 1, 2020? The answer is now unclear. Non-financial organizations should prepare to account and report on CECL starting with their Q1 filing until they receive clarification about whether they qualify for extension granted to financial institutions under federal COVID-19 legislation.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act extended implementation of the new credit loss standard for insured depository institutions, bank holding companies, or any affiliate until December 31, 2020 or the end of the crisis, whichever comes first.

But it is not clear whether the extension applies to other organizations, including those holding trade receivables, investments in leases, employee loans, notes receivable and other financial assets. In some cases, the standard may affect off-balance-sheet exposure items.

Non-financial institutions, such as SEC registrants (excluding Smaller Reporting Companies), which were expected to begin implementation as of January 1, 2020, should prepare for implementation of the new standard until it is clear that they qualify for the extension.

The requirement to include qualitative prospective considerations may cause some organizations to reassess CECL’s impact in light of the COVID-19 pandemic. 

For example, registrants in the oil and gas sector that anticipated minimal impact from the standard just two months ago must now consider potential losses on receivables based on the price of oil at $25 dollars a barrel or lower. Estimating the impact to current receivables and other financial assets is likely to be difficult considering the oversupply of oil resulting from the production war between Russia and OPEC combined with the reduction in demand as a result of COVID-19.

Commercial businesses will need to determine the impact on their supply chain of disruptions caused by “shelter-in-place” orders that have been enacted in many major markets. For example, food distribution companies must now consider the likelihood they will receive payments from restaurants that no longer have operating sit-in dining.

Situations like these will mean that assessing the impact to current expected credit losses will require significantly higher scrutiny and effort than many non-financial organizations expected.

Weaver is here to assist you in determining the effects of COVID-19 on your business. Contact us with questions or concerns about credit loss reporting requirements for your business.

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