In September 2021, the American Institute of Certified Public Accountants (AICPA) hosted the National Conference on Banks and Savings Institutions in National Harbor, MD. The conference marked the return to an in-person format after COVID-19 resulted in the 2020 conference being held virtually. While approximately 900 of the 1,200 registrants chose to continue to participate remotely, there were approximately 300 banking and audit professionals attending in-person. As such, CRI professionals continued the 20-year tradition of proactively participating in the conference with team members attending both in-person and virtually.
One of the many benefits to participation in the conference is the opportunity to hear directly from leadership of federal banking agencies regarding their views on matters of accounting, audit, and regulation. No segment is more valuable than the annual “fireside chat” that included chief accountants from the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the Board of Governors of the Federal Reserve System. This year’s chat did not disappoint and included a variety of timely, relevant topics.
Current Expected Credit Losses (CECL)
A large portion of the discussion centered around the impact of the release of credit loss reserves during 2021 by institutions adopting in Q1 of 2020. However, discussions most relevant to community banks included the regulators continued commitment to CECL for smaller, less complex institutions and the benefits to the industry as Q1 of 2023 moves closer. The Federal Reserve System provided a discussion on their SCALE model, clarifying that it would serve solely as a “starting point” for institutions with total assets less than $1 billion.
Environmental, Social, and Governance (ESG)
This particular discussion focused on climate change and the associated impact on the banking industry. However, there was also dialogue around the impact that the banking industry has on climate and the development of the Task Force on Climate-Related Financial Disclosures (TCFR).
The regulatory group pointed out that Bitcoin and other non-stablecoin digital assets are generally accounted for as indefinite-lived intangibles. It was further noted that these assets are recorded at cost and cannot be written up for subsequent increases in value. However, any impairment must be recognized in the quarter incurred. Accounting and regulatory guidance continues to evolve in this dynamic area.
FDIC Improvement Act (FDICIA)
Auditor independence continues to be an area of concern and focus, as does limitation of liability provisions in engagement letters. However, the Interim Final Rule (IFR) to Provide Temporary Relief from Part 363 Audit and Reporting Requirements, and whether the IFR might be extended, remains top of mind for many community banks.
London Inter-Bank Offered Rate (LIBOR) transition
The LIBOR transition beginning this year and continuing through 2024 was a hot top of discussion. Distinctions between the requirements for both new and legacy contracts were covered, as was “fallback language.” The use of LIBOR in a new contract after December 31, 2021, will be considered to pose a safety and soundness risk.
The information provided above represents only a small sample of the wealth of information obtained by the banking, audit, and regulatory professionals participating in the 2021 conference. As your community bank seeks to navigate this dynamic and evolving accounting and regulatory environment, engaging with an experienced set of professionals can help your financial institution stay compliant. For more information or assistance, please contact a CRI advisor.