Accounting: Bank Accounting Advisory Series Updated

The Office of the Comptroller of the Currency (OCC) has published a revised version of the „Bank Accounting Advisory Series“ which is a set of frequently asked questions (FAQs) relating to accounting issues of banks. The FAQs thereby cover issues ranging from the accounting for unrealized gains and losses of banks‘ investments, to the accounting for restructured loan agreements, to the accounting for life insurance policies on staff members.
The 2023 FAQs primarily reflect „updates to clarify the application of accounting standards issued by the Financial Accounting Standards Board (FASB) on topics including the elimination of recognition and measurement of troubled debt restructurings by creditors, loan modifications, and credit losses“, although they contain information on all other topics as well. The following questions were added or amended in the new version (as quoted); please note that due to the large number of affected FAQs, we refrain from listing the responses to each question, but indicate where such may be found in the document:
### Newly added questions:
##### Under Subtopic 3B, Lessee Classification and Accounting
– FAQ 7 (p. 70): How should a sublessee in a common control group amortize leasehold improvements if the intermediate lessor leases the property from an unrelated party?
##### Under Subtopic 10B, Intangible Assets
– FAQ 11 (p. 156): Is it permissible for a privately held bank that previously elected the PCC accounting alternative to revert to accounting for goodwill in accordance with ASC 350-20-35-1, which precludes amortization and requires testing of goodwill at a reporting unit level?
##### Under Subtopic 12B, Loan Modifications
– FAQ 1 (p. 188): What constitutes a modification that should be reported as a loan modification to a borrower experiencing financial difficulty in the call report?
– FAQ 3 (p. 190): Is the renewal of the loan at, or near, maturity required to be reported as a modification to a borrower experiencing financial difficulty in the call report?
– FAQ 7 (p. 192): Is the modified loan reported as a modification to a borrower experiencing financial difficulty in the call report?
– FAQ 8 (p. 192): Assuming the bank forgives Note B, how would this affect the reporting requirements in the call report?
– FAQ 15 (p. 196): How should the ACL be measured for loans identified as TDRs before the adoption of ASU 2022-02?
– FAQ 17 (p. 197): How should the bank account for the loan origination fees and costs associated with this modification?
– FAQ 19 (p. 198): What discount rate should be applied to estimate the present value of expected cash flows for modifications after an institution adopts ASU 2022-02?
### Updated questions:
##### Under Subtopic 2C, Commitments
– FAQ 2 (p. 35): How should this loan commitment be accounted for?
– FAQ 3 (p. 36): During the commitment phase, when would it be appropriate to recognize a bank’s change of intent to hold its loans for investment when it previously intended to sell?
##### Under Subtopic 3A, Lessor Classification and Accounting
– FAQ 2 (p. 60): Once lease classification is determined, what are the major financial statement differences to consider at the lease commencement date for a lessor?
– FAQ 4 (p. 62): How is a direct financing or sales-type lease recorded on the balance sheet?
– FAQ 8 (p. 65): How should the residual value of this property be determined?
– FAQ 9 (p. 65): May the bank include the residual value guarantees for a portfolio of leased assets in the calculation of the lease payments criterion of an individual lease?
##### Under Subtopic 3C, Sale-Leaseback Transactions
– FAQ 3 (p. 72): In some cases, the sale-leaseback may occur with a related party. It could be with the parent holding company, entities that were consolidated by the parent and are under common control, a major shareholder, or a partnership comprising major shareholders and board members. How should such transactions be accounted for?
##### Under Subtopic 12B, Loan Modifications
– FAQ 13 (p. 195): How should the bank account for the direct costs incurred in a modification and for the modification fee charged to the borrower?
—
To conclude, the OCC also notes that it has removed, relocated, or revised content in these sections, again as quoted:
– Subtopic 1B, Other-Than-Temporary Impairment
– Subtopic 2A, Troubled Debt Restructurings
– Subtopic 2G, Acquired Loans
– Topic 3, Leases
– Topic 4, Allowance for Loan and Lease Losses