Major accounting changes are on the horizon for credit unions across the nation, thanks to recent updates issued by the Financial Accounting Standards Board regarding equity investments, lease commitments and loan losses. Even though the effective dates are still several years out, there are ways credit union leaders can prepare now for these changes.

The highest profile of these FASB updates deals with the CECL, or current expected credit loss, standard. In June 2016, FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which fundamentally alters the manner in which credit unions calculate the allowance for loan and lease losses.

FASB's new CECL guidance changes the current methodology of accounting for credit losses from an incurred loss model to that of a current expected credit loss model. The new measurement of current expected credit losses will be based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This guidance is effective for years beginning after Dec. 15, 2020, with early adoption permitted for years beginning after Dec. 15, 2018. Credit union leaders should begin to consider now the impact this will have on their practices, particularly as it relates to these key areas:

• Data collection: Under the new model, there will be a need for significant amounts of accessible, loan-level data. Credit unions can start to plan now for the collection and maintenance of more granular data.

• Longer loss horizon: The new CECL standard uses the lifetime of the credit instrument as the time horizon instead of the next 12-month period typically used under the previous methodology. These forecasted estimates will need to be defensible, which could be particularly challenging for longer-term loans, so credit union leaders should start to consider how they will address this new longer loss horizon.