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July 2017

Three New Accounting Standard Implementation Deadlines Are

Approaching Quickly Are You Prepared?
Lauren Callahan | DHG Financial Services
Sara Dopkin | DHG Financial Services
Kyle Gluth | DHG Financial Services
Three new accounting standards that will significantly impact financial institutions - revenue recognition, leases,
and the current expected credit loss (CECL) model standards - are fast approaching, and their adoption could have
significant financial and operational impacts. To prepare for implementation, audit committees and management
should consider the following topics and monitor progress.

Revenue Recognition
In May 2014, the Financial Accounting Standards Board
(FASB) issued a new revenue recognition standard
Accounting Standards Codification (ASC) Update 2014-
09, Revenue from Contracts with Customers. The standard
is effective for annual reporting periods beginning after
Dec. 15, 2017, for financial institutions that are public
business entities (PBEs), while the effective date for non-
PBEs is one year later. A question to consider: with only
six full months left until the effective date for PBEs, is your
financial institution ready for implementation? Now is the
time for management and those charged with governance
to prepare for implementation, if you have not already done
so, because the task may take longer than anticipated.
In assessing your adoption status in the implementation
process, you may want to ask the following:
Has an evaluation been performed to identify
impacted revenue?
Although interest related revenue streams will
generally not be impacted by the standard, several
types of non-interest revenues will be affected.

Assurance | Tax | Advisory | dhgllp.com

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Listed below are typical revenue types of a financial revenue or revenue group source and contract to
institution and the possible applicability: determine whether the revenue falls within the scope
of the standard. In addition, the standard indicates
Likely to be Not likely to be
Not affected by the a five-step approach for analyzing and recognizing
affected to some significantly
new standard
degree affected revenue for each contract:
Sales of other Loans (interest 1. Identifying the contract,
Monthly service
real estate income & other 2. Identifying the performance obligation in the
charges
owned lending fees)
contract,
Securities 3. Determining the transaction price,
Insufficient fund
Trust services (interest &
fees
dividend income) 4. Allocating the transaction price to the performance
obligations in the contract and
Administration
services for 5. Recognizing revenue when or as the financial
customer ATM fees Derivatives
institution satisfies the performance obligation.
deposit
accounts Although these steps may appear straightforward,
Asset
actual analysis may be more complex and time
Wire transfer Repurchase consuming than anticipated. In addition, to comply
management
fees agreements
fees with internal controls over financial reporting, the
Loan servicing
financial institutions considerations under the five-
fees step process should be documented.
Stand-by loan Has the impact on customers been considered?
guarantee fees This standard will not only affect the financial
Most credit card institutions revenue but also will impact the financial
fees results of many of the institutions borrowers, which
would in turn affect debt covenants. Consideration
should be given to training credit analysts and loan
While most credit card fees are not subject to
officers, so they understand how the upcoming
the standard, credit card arrangements should
changes from this standard will impact the financial
be evaluated for applicability. For example, if an
results and debt covenants of loan borrowers.
institution offers asset trust services to its credit
card holders for a fee, then the fees would be Has the transition method been determined?
subject to the new standard provisions. In addition, Companies can select either the full retrospective
there are multiple views on whether interchange or the modified retrospective method to adopt the
fees are impacted by the standard the institution standard. The full retrospective method requires a
should analyze each of its contracts from which it restatement of all presented prior period financial
earns interchange fees to ensure proper treatment. statements this method would likely be preferable
Institutions should communicate and involve their to financial statement users in the event there are
independent auditors in their conclusions as early in material changes to the comparability of the periods
the adoption process as possible. After adoption and presented resulting from adoption. In many cases, the
going forward, nonrecurring transactions should be impact may not be material, and therefore, this method
evaluated individually to determine the proper revenue may not be necessary. The modified retrospective
recognition. approach requires a cumulative effect adjustment
to the opening retained earnings of the period in
Are areas other than the accounting department
which the new revenue standard is applied, and while
involved in the transitioning process?
comparative periods are not adjusted, disclosures
As the standard will impact several business lines, the
are required to reflect the results under legacy GAAP
process for implementation should include a diverse
for the initial year of adoption. In practice, this would
project team from each business line to understand
require dual recordkeeping for the year of adoption to
and determine the impact on each revenue stream.
comply with the disclosure requirements.
The process should first include an inventory of each

Assurance | Tax | Advisory | dhgllp.com

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Leases
In February 2016, FASB issued ASU 2016-02 Leases
(Topic 842). The update amended the existing standard
to require lessees to recognize a right of use asset and
corresponding lease liability for all leases over 12 months
on their balance sheet. For financial institutions that
are PBEs, the new standard is effective for fiscal years
beginning after Dec. 15, 2018, and the effective date for
all other financial institutions is one year later.
With the effective date quickly approaching, now is the
time to develop and execute an implementation plan
that ensures successful adoption of this new standard.
In developing and executing the implementation plan,
consider the following questions:
Who is monitoring the implementation of the new
standard?
Assign an individual (or a team) the responsibility to
track and report implementation efforts and progress.
Periodic progress reports will help ensure that the
project stays on track while also communicating the
impact of the change to key stakeholders.
Does the team have the appropriate working
knowledge needed to implement the new
standard?
Review the update and other applicable guidance to
understand what amendments were made and obtain
the appropriate working knowledge. If necessary,
secure the appropriate continuing professional
education or training for team members responsible
for implementing the new standard.
Do you have all of the necessary information?
Gather data on all contracts, including amendments,
which may be termed a lease under the new
guidance for further analysis, as well as all applicable
amendments to existing contracts. This process may
be cumbersome and is likely to require additional time,
especially if the entitys operations are decentralized.
Will the new lease standard apply to any of your
financial institutions contracts?
Create a systematic process to review, evaluate and
estimate the balance sheet impact of each contract.
The process should include internal controls that
help ensure all possible leases, including lease
modifications, are evaluated. Utilize software where
necessary to record, evaluate and monitor all leases.
The new standard is likely to increase ongoing
compliance costs.
Assurance | Tax | Advisory | dhgllp.com
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Has your financial institution considered the
potential implications of the new standard?
Once all leases have been evaluated, the analysis
should be reviewed to determine the impact on
regulatory capital, taxes and any restrictive covenants.
Going forward, and prior to the financial institution
entering into an agreement, all new leases and or
amendments should be reviewed. This analysis will
facilitate buy versus lease decision making and/or
help determine if the lease term or payment structure
should be modified.
Current Expected Credit Loss Standard (CECL)
While ASU 2016-13, Financial InstrumentsCredit
Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments (CECL) may seem as though the
implementation period is in the distant future, financial
institutions should begin planning today. The effective date
for PBEs that are SEC filers is fiscal years beginning after
Dec. 15, 2019. The effective date for PBEs that are not
SEC filers and non-public entities is fiscal years beginning
after Dec. 15, 2020. Institutions should not delay planning
for CECL much longer.
The ASU is intended to improve financial reporting by
requiring recording of lifetime expected credit losses on
loans and other financial instruments held by financial
institutions and other organizations at the date of origination
or acquisition. The ASU requires the measurement of all
expected credit losses for financial assets not recorded
at fair value based on historical experience, current
conditions and reasonable and supportable forecasts.
Many financial institutions are just beginning the process
of evaluating CECLs impact on their financial statements.
The following are steps you can to take to prepare for the
time when the standard becomes effective:
Form a CECL task force to include employees from
various departments that will be impacted, not just
accounting or credit, that will report to the Audit
Committee regarding progress
Determine what financial reporting data is available
and relevant, and begin collecting prior year data
Evaluate credit risk modeling and forecasting
methodologies - will the company outsource the
modeling, or perform in-house?
Review your lending portfolio to determine portfolio
segmentation with sufficient granularity to appropriately
forecast expected credit losses

Identify peer banks to benchmark results against
SEC staffers have stressed the importance of making
progress on implementation of the new standard, and
while companies might not know the full impact, the SEC
is interested in the advancements companies have made
thus far towards adoption and have emphasized disclosing
the potential impact of the new standard. Examples of
disclosures for companies in the early evaluation process
are as follows:
The company has formed an implementation
committee to assess the impact of the new
standard. The committee is in the process of
gathering information about the loan portfolios and
considering the acceptable methodologies that
may be used to implement the new standard. The
committee has not yet determined the impact on
the financial statements of adoption of the new
standard.
As time progresses, financial institutions should be
prepared to update disclosures to communicate their
continued advancements in evaluating the ASUs impact
on the financial statements.
In summary, these three standards have the potential to
significantly impact a financial institutions financial and
regulatory results, and deadlines are approaching quickly.
Start preparing today - the new revenue recognition
standard will be effective in less than one year. If the
implementation process has not started yet, now is
the time because the process may prove to be more
time consuming than expected. Please contact us to
answer any questions or if we can help you through the
implementation process.
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A more detailed look at the new lease standard can be
found here.
More information about revenue recognition can be
found here.
More information about CECL can be found here.
Assurance | Tax | Advisory | dhgllp.com
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About the Authors
Lauren Callahan, CPA, is a senior manager and has
more than 10 years of public accounting experience,
focusing on audits of financial institutions. Lauren
focuses on community banks, which include both
private and publicly traded entities and is experienced
in financial statement audits, SEC and FDICIA
reporting, and mergers and acquisitions. In addition
to external audit services, Lauren is well-versed
in internal auditing and consulting services, which
include loan file review, balance sheet and operational
audits, and bank secrecy act. Lauren can be reached
at lauren.callahan@dhgllp.com.
Sara Dopkin, CPA, is a manager and has more than
10 years of experience in public accounting in all
areas of accounting and attestation services including
audits, reviews and compilations. She works with both
publicly traded and privately held companies. Her
extensive experience working with financial institutions
has given her the skills needed to assist these entities
with complex financial accounting issues and merger
and acquisition activities, including accounting
for acquisitions of failed financial institutions, SEC
and regulatory reporting. Sara can be reached at
sara.dopkin@dhgllp.com.
Kyle Gluth, CPA, is a manager and has experience
performing independent audits for financial institution
Automated Clearing House and Bank Secrecy Act
(BSA)/Anti-Money Laundering (AML) programs, using
the FFIEC BSA exam manual. Kyle performs external
and internal audit functions and provides Sarbanes-
Oxley consulting services for SEC companies. Kyle
can be reached at kyle.gluth@dhgllp.com.
About DHG Financial Services
DHG Financial Services professionals provide you
with in-depth industry knowledge and a wide range
of advisory, assurance and tax services to address
issues facing your industry in todays challenging
environment. For more information, visit dhgllp.com/
financial-services.