Technical Accounting of the Day

CECL: Can You Reverse a Prior Charge-Off? A common question in bank accounting is whether a loan that was previously charged off can be “written back up” if the borrower’s financial condition improves and collectibility looks better. Management often asks if they can reverse the charge-off and re-book the asset to reflect the improved outlook. Under U.S. GAAP, once a financial asset is charged off (in full or in part), the charge-off establishes a new amortized cost basis for that asset. That new basis cannot be increased later based on improved recovery expectations. In other words, it is an unacceptable accounting practice to reverse a prior charge-off and re-book the asset, even if management concludes that prospects for recovery have improved. Instead, improved collectibility is reflected through the Allowance for Credit Losses (ACL) . Management should include expected recoveries of amounts previously written off when estimating the ACL. These expected recoveri...

Accounting Implications of the GENIUS Act for Holders of Stablecoins (U.S. GAAP) The GENIUS Act does not amend U.S. GAAP. However, by creating a federally defined legal category, “ payment stablecoins ,” it can significantly change the accounting evaluation for entities that hold certain stablecoins. This discussion is written specifically from the perspective of the holder of a stablecoin (not the issuer). Because U.S. GAAP classification depends heavily on legal rights and enforceability, the GENIUS Act may affect whether a holder evaluates a stablecoin as: an intangible asset, a financial asset, and/or potentially a cash equivalent. 1) Anchor Point: ASC Glossary Definition of a Financial Asset Under the ASC Glossary , a financial asset includes cash , evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to: receive cash or another financial instrument from a second entity, or exchange other financial i...