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 Securities Regulation

SEC Issues New Staff Accounting Bulletin 119 to Update Credit Losses Guidance

By Alan J. Wilson, WilmerHale 

In connection with the impending effectiveness for many calendar-year companies of ASC Topic 326, Financial Instruments – Credit Losses, FASB’s new current expected credit losses (CECL) standard, the SEC staff issued Staff Accounting Bulletin 119 (SAB 119) on November 19, 2019 to update its current loan loss accounting guidance.  SAB 119 becomes effective for public business entities that are an SEC filer upon their adoption of ASC Topic 326, which became effective for fiscal years beginning after December 15, 2019, other than for entities eligible to be smaller reporting companies, for which the standard becomes effective for fiscal years ending after December 15, 2022.

Similar to the guidance it replaces, SAB 119 covers a number of implementation questions, including with respect to documentation requirements:

  1. Measuring current expected credit losses, generally.
  2. The development, governance, and documentation of a systematic methodology, including the factors or elements that the staff normally would expect registrants to consider when developing (or subsequently performing an assessment of) their methodology for determining their allowance for credit losses under GAAP, the staff’s expectations for documenting a registrant’s allowance for credit losses methodology, and the staff’s expectations for written policies and procedures to cover a registrant’s allowance for credit losses internal accounting controls and methodology.
  3. Documenting the results of a systematic methodology, including expected support for a registrant’s allowance for credit losses for loans under ASC Topic 326 and for reporting in its financial statements.
  4. Guidance for validating, and documenting the validation of, a registrant’s systematic methodology used to estimate allowance for credit losses.

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