Financial institutions using CARES Act deferrals won’t violate GAAP, SEC says

By Ken Tysiac

Eligible financial institutions will not be in violation of GAAP if they take advantage of the deferrals or suspensions of two FASB standards as permitted in the new federal coronavirus relief law, SEC Chief Accountant Sagar Teotia said Friday in a statement issued by the commission.

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L., 116-136, was signed into law on March 27 and contains a deferral for depository institutions of FASB’s new accounting standard on credit losses and a suspension for financial institutions of FASB’s troubled debt restructuring rules.

Section 4014 of the CARES Act states that no insured depository institution, bank holding company, or any affiliate thereof shall be required to comply with FASB Accounting Standards Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, until the earlier of the end of the national emergency related to the pandemic or Dec. 31, 2020.

Section 4013 of the CARES Act permits a financial institution to elect to suspend troubled debt restructuring accounting under FASB Accounting Standards Codification Subtopic 310-40, Receivables — Troubled Debt Restructurings by Creditors, in certain circumstances, beginning March 1 and ending on the earlier of Dec. 31, 2020, or 60 days after the national emergency terminates.

FASB, a not-for-profit established in 1973, is recognized by the SEC as the accounting standard setter for public companies and sets standards for private companies and not-for-profit entities as well.

Sections 4013 and 4014 of the CARES Act left financial statement preparers and auditors wondering if companies that took advantage of the deferral and the suspension would be in violation of GAAP. Teotia said the SEC’s Office of the Chief Accountant received inquiries from preparers and auditors asking if election of these narrow and limited options would be deemed to be in accordance with GAAP.

Teotia said that for entities that are eligible for and elect to apply Section 4013 or Section 4014 of the CARES Act, the SEC staff would not object to the conclusion that this is in accordance with GAAP for the periods when these elections are available.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

Ken Tysiac ( is the JofA’s editorial director.


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