On February 1, 2024, the National Credit Union Administration (NCUA) released an addendum to its Other Supervisory Committee Audit, Minimum Procedures Guide. The addendum replaces the Allowance for Loan and Lease Losses (ALLL) procedures for new Current Expected Credit Losses (CECL) required under Accounting Standard Codification’s Financial Instruments – Credit Losses (Topic 326), which became effective for most entities on January 1, 2023. For many credit unions already strapped for resources, the addendum adds another layer of complexity to the Minimum Procedures Guide, which had already been overhauled in January of 2020.
Implementing CECL has posed several challenges for credit unions, notably smaller institutions with limited resources and data availability. These challenges include accurately estimating future credit losses, incorporating economic forecasts and scenario analysis into credit risk models, and navigating the regulatory requirements associated with the new standard. For most credit unions, implementing CECL has already required significant investments in technology, data infrastructure, and staff training to ensure compliance. Given the scope of the new procedures, it is expected that credit unions will need to spend additional time and money for their Supervisory Committee, internal auditor, or other qualified reviewer to complete these additional procedures.
These new procedures are meant to address the complex impact on areas prominent to credit unions, such as loans, debt securities, off-balance sheet credit exposures, and credit loss expenses. Unfortunately, this will inevitably result in additional time and work for credit unions, particularly those already working to keep up with the challenges of today, including regulatory compliance, cybersecurity risks, and staff hiring and retention.
To view the full addendum, please visit the NCUA’s website for a full list of manuals and guides.
Laura Everett is a principal at ARB. She provides accounting, attest, and business advisory services primarily to credit unions, auto dealerships, and buy here/pay here finance companies. As an actively involved member of the credit union industry, Laura specializes in helping credit unions with financial reporting, compliance, and mergers. Her industry expertise includes comprehensive services from financial statement audits, supervisory committee audits, and internal audits to Bank Secrecy Act independent testing, fraud investigations, and other agreed-upon procedures.
