“The Basel proposal is relevant to U.S. financial institutions because it would require banks and credit unions to adopt an 'expected credit loss' approach to establishing reserves for credit losses,” Edwards said during a subsequent interview. “The 'expected credit losses' approach under U.S. GAAP is the FASB's proposed 'current expected credit losses,' which CUNA and other U.S. credit union organizations have opposed.”

Both FASB and the International Accounting Standards Board had been developing new models to account for loan losses in light of problems caused during the recent recession. On Dec. 20, 2012, FASB issued for public comment a proposal that would change the way financial institutions accounted for expected loan loss.

FASB's proposed model for CECL utilized a single 'expected credit loss' measurement objective to recognize losses, replacing the multiple existing impairment models in U.S. GAAP, which generally require that a loss be incurred before it is recognized. Under the proposal, management is required to estimate the cash flows it does not expect to collect, using all available information, including historical experience and reasonable and supportable forecasts about the future.

The balance sheet would reflect the current estimate of expected credit losses at the reporting date – the allowance for credit losses – and the income statement would reflect the effects of credit deterioration (or improvement) that has taken place during the period as a provision for bad debt expense.

The Basel Committee's current guidance, if finalized as proposed, could hasten the adoption of FASB's CECL guidelines, Edwards said. Meanwhile, U.S. credit unions and their trade groups see inherent problems with the FASB proposal as it is currently written.

Read more: NAFCU warns of two FASB proposal issues that will affect credit unions …

NAFCU believes the FASB proposal will have a negative impact on credit unions with respect to two issues, according to Alicia Nealon, the association's director of regulatory affairs.

First, the rule will result in an increase in credit union allowances, misleading members and potentially affecting credit union regulatory capital requirements, Nealon said. Second, it will impose significant costs on credit unions by requiring increased data collection, implementation of proper recording systems and the hiring and training of personnel to conduct the forecast.

“The potential effects of the FASB proposal are even more onerous when viewed in combination with the NCUA's risk-based capital proposal, an issue NAFCU raised in its April comment letter to the agency,” Nealon explained. “NAFCU believes FASB should carefully consider the effects of its proposal in combination with the NCUA's proposal in order to remove duplicative regulatory constraints on credit unions.”

As member-owned financial cooperatives that are not publicly traded, credit unions should not be subject to the FASB's proposed rule, Nealon added. However, if the FASB insists on applying the proposed standard to credit unions, then credit unions should be given additional time to create proper recordkeeping systems and to hire and train personnel.

“NAFCU also urges FASB to streamline and simplify the method for calculating credit losses wherever possible,” she said.

A May 30, 2013 letter to FASB from NAFCU Regulatory Affair Counsel Angela Meyster outlined in detail the trade group's concerns about the proposed rule.

CUNA offered similar criticism in an Aug. 21, 2014 letter to FASB Chairman Russell Golden from then acting President/CEO Bill Hampel. Proposed changes to the way credit unions account for loan loss, in particular the need for additional reserve funding, would have detrimental effects on credit unions, Hampel wrote.

“This unwarranted increase to many credit unions' (allowance for loan and lease losses) accounts would directly result in a reduction in their retained earnings,” Hampel's letter said. “A decrease in retained earnings can lead to a reduced capital ratios, which could trigger prompt corrective action implications for numerous credit unions that currently do not have PCA concerns.”

Hampel also stressed the need for FASB to consult with the NCUA in terms of proposed changes in rules, adding that the negative effects of the agency's proposed risk-based capital rule could be compounded by similar actions taken by FASB. He also stressed the need for FASB to recognize credit unions' difference from for-profit financial institutions in its rulemaking process.

“One key distinction is that the Federal Credit Union Act limits net worth for most credit unions to retained earnings, making it more difficult for them to build capital than for other institutions that can raise capital in the financial marketplace,” Hampel wrote. “This limit, in effect, also restricts the ability of the NCUA to adjust its regulations in response to changes in accounting standards that could affect credit unions' capability to build capital, as is possible for other federal financial regulators.”

Hampel, now CUNA's chief policy officer, did not respond to CU Times' request for further comments.

The FASB board met as recently as March 11 to discuss decisions regarding transition requirements. The new rule in whatever form it takes may come as early as 2017, sources said.