Private Companies Face ‘Lack of Soured Loans’ Data Issues

Privately held companies had a “good” problem to solve during this year’s first quarter adoption of credit loss accounting rules: not enough historically soured loans, according to discussions by FASB’s private company advisers. Although adopting the current expected credit losses (CECL) standard was not the “bugaboo they thought it would be,” there were issues that arose that caused companies to tap peers as opposed to less helpful banking regulators, members of the Private Company Council (PCC) said on April 25. The PCC is an 11-member body that works with the FASB to develop rules for private companies in the United States. “I think one of the problems has been—and I’m not complaining about this because this is a good thing—but most privately held banks have not had enough recent loan loss history to really be able to guess what’s going to happen next. So we’ve had to rely a lot on pooled data or peer data or what other people or what public banks have experienced,” said Robert Messer, senior executive vice president, chief financial officer–chief risk officer at American National Bank of Texas. “I’m not complaining because we haven’t had too many loan losses in the last 10 years, but that has caused us not to be as accurate with our CECL guesses.” This “no loan loss history” privately held banks faced has generated uncertainty about whether they have the “right answer” in their loss estimates, as much of the data they used came from peers that are likely in the same boat, the discussions revealed.


Global ESG Rulemaker Seeking Public Input on Two-Year Agenda Priorities

Companies can weigh in about what the International Sustainability Standards Board (ISSB)’s agenda priorities should be for the next two-years, the board announced on May 4. The board issued a request-for-information (RFI), “Consultation on Agenda Priorities,” seeking public input about: a) the strategic direction and balance of the ISSB’s activities; b) the suitability of criteria for assessing which sustainability-related topics, industries and activities to prioritize and add to the agenda; and c) a proposed list of new research and standards-setting projects. The consultation document is the ISSB’s first formal effort since it was fully seated last year to settle on the next batch of environmental, social and governance (ESG) related disclosure rules for global use. In prior discussions, the board said it would solicit public views about its agenda after completing its first two standards: IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Financial Disclosures. SI and S2 will be published by the end of June. Comments are due by Sept. 1, 2023, and can submitted via an online survey page, the board said.

Proposed Amendment of IFRS for SMEs to Include Accounting Relief from Global Tax Legislation

On May 3, 2023, the International Accounting Standards Board (IASB) unanimously voted to issue a proposal that would amend IFRS for SMEs to introduce a temporary exemption from income tax accounting rules tied to international tax reform. Companies will get a shortened comment period—45 days—to weigh in. “It looks a bit odd that we give SMEs only 45 days, while we gave big companies 60 days, but I think we have to acknowledge the population this is concerning and the majority of those probably are part of the group who already know this is coming,” IASB Chair Andreas Barckow said. “And if they are not, they seem to be pretty big SMEs with at least 750 million turnover so they should be knowing that something is coming their way.” All 14 board members agreed with issuing the proposal. IFRS for SMEs is a self-contained package of rules that was developed in 2009 for companies that do not have public accountability and publish general purpose financial statements for external users. More than 80 countries, including the United States, permit the use of IFRS for small-to-medium sized entities (SME). The proposal will introduce in the IFRS for SMEs guidance a temporary exception so that companies will not have to account for deferred taxes arising from Pillar Two model rules that were issued by the Organisation for Economic Co-operation and Development (OECD).