COVID-19 and Identifying Impaired Loans to Meet Regulatory Requirements

Identifying Impaired Loans to Meet Regulatory Requirements

Due to the coronavirus outbreak, it is highly likely that more borrowers will be unable to adhere to the terms of their loans. They will experience business and production disruptions, supply-chain interruptions, negative impacts on customers, volatility in the equity and debt markets, reduced revenue and cash flows, and other economic consequences.

If your institution has not yet adopted the CECL model, you must identify trigger events that cause loans to become impaired.

There are GAAP accounting issues that will affect your borrowers’ financial statements during the COVID-19 pandemic. Understanding these factors could help your loan workout group assess the loan modifications that would most effectively help borrowers.

• What are the best methods for identifying impairment triggers?
• How can you establish a uniform impairment policy?
• When is impairment accounting required?
• How can you estimate the amount of impairment under GAAP?
• When and how often do you need to update impairment estimates?
• Where should impairment schedules be included in your financial reports?
• What COVID-19 accounting and reporting issues could indicate impairments?

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