NACUBO Responds to FASB on Credit Impairment
April 8, 2011
NACUBO’s first accounting comment letter of 2011 addresses changes proposed by the Financial Accounting Standards Board (FASB) for estimating credit impairment. The FASB is recommending in its supplementary document (the Supplement), “Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities: Impairment,” that an expected loss model be used to evaluate loan pool receivables.
The Supplement is a due process document issued by both the FASB and the International Accounting Standards Board (IASB) to their respective constituents. The Supplement attempts to blend the positions of both boards in an effort to help them reach common ground on a financial instrument impairment model. As such, the document addresses credit impairment in the context of open portfolios and focuses on the timing of the recognition of expected credit losses.
The proposal contained in the Supplement uses a forward-looking approach to how credit losses are estimated for open loan portfolios. The proposed forward-looking model is an expected loss model that evaluates the risk characteristics of a loan pool. Although the Supplement appears to focus on the financial services industry, because colleges and universities have student loans and faculty/staff mortgage loans, it was important for higher education to provide comments to the FASB. NACUBO’s comment letter raises three main issues to FASB:
- The loan receivables of higher education institutions do not meet the definition of a loan pool. Colleges and university loans are typically directly related to the institution’s programmatic mission. For such mission-related lending activities, borrowers are not evaluated based upon demographic, collateral, payment term, interest rate, or credit factors. Unlike the financial services industry, higher education institutions do not originate loans to make money on the spread between the cost of funds loaned and the borrower’s interest rate payments. Additionally, college and university loans are not grouped into pools based upon borrower credit characteristics, rather the loans are managed as a group – or unit – for administrative ease.
- The Supplement states that the impetus behind the need for global guidance was the global economic decline caused in part by the delayed recognition of loan and other financial instrument losses. The proposed guidance is written with the financial services industry in mind. NACUBO remains concerned that all entities will be required to follow accounting standards written with a specific industry in mind – resulting in undue effort and meaningless disclosures for colleges and universities.
- NACUBO asks the FASB to consider including thresholds of applicability in its accounting guidance. Guidance would only apply if a threshold of applicability is met. For example, the guidance should concentrate on either the business strategy behind the use of a financial instrument, or address the significance of a financial instrument to the assets (or liabilities, revenues or expenses) of an entity.
Director, Accounting Policy
- Tuition Increases Slow, While Student Loan Borrowing Declines, College Board Reports
- IRS Response to NACUBO on 1098-T Penalties Offers No Relief
- IRS Publishes Final Rules on Overpayments of Arbitrage Rebate on Tax-Exempt Bonds
- 2015 Intermediate Accounting and Reporting - Winter
January 22-23, 2015
- 2015 Endowment and Debt Management Forum
February 4-6, 2015
- 2015 Unrelated Business Income Tax
February 25-27, 2015
- ON-DEMAND: How to Build, Develop, and Support a Compliance Program at Your Institution
- ON-DEMAND: Strategic Tuition Assessment and Tuition Restructuring
- ON-DEMAND: Are Shared Services Right for Your Organization – The KU Journey
- ON-DEMAND: VIRTUAL: 2014 Annual Meeting
- ON-DEMAND: VIRTUAL: Student Financial Services Conference
- ON-DEMAND: VIRTUAL: Higher Education Accounting Forum
- A Guide to College and University Budgeting: Foundations for Institutional Effectiveness, 4th ed. - by Larry Goldstein
- NACUBO's Guide to Unitizing Investment Pools - by Mary S. Wheeler
- Managing and Collecting Student Accounts and Loans - by David R. Glezerman and Dennis DeSantis