I'd first like to start by thanking our CPA firm for providing such a non-answer....

Anyway, we're rolling out a new product. Small, business purpose ODP LOC. Since it's small we're going with an evergreen (no maturity date). We're not charging an orignation fee, but we do have to account for the direct origination costs and then defer them and earn over the life of the loan.

Since there's no hard maturity date, the instructions say: “consistent with the understanding of the borrower and lender” or ”If no understanding exists, the lender’s estimate of the period of time over which the loan will remain outstanding.”

Well, no understandings exist. We're charging a minimal fee on a monthly basis and need to defer some costs over some time period but we have no idea what we might use to determine how long it will remain oustanding.

Anyone have any input on how they do this?

All FASB's have a materiality exception built in. if your CPAs buy off on it try to show the effect is immaterial to the overall financial statements.

I will disagree with the previous response. FASB's do not have a materiality exception built in. Auditors make a determination if the financial statements are presented fairly.

This would be no different than how you were accounting for other direct origination costs for loan products.

Thansk both for your comments.
osupca, we plan to account for the direct origination costs the same way we do our other loan products.. which is causing my headace. Without a hard maturity date we have to use the "lender's estimate of the period of time over which the loan will remain outstanding." Theoretically it could any amount of time between 1 day and 20 years or more.
We don't offer now, nor have we ever offered, an LOC with no maturity so I have no expectation of the length of time this could expect to remain open.

I basically used a dart board, some dubious math on ages and averages of DDAs and played a game of solitaire to come up with an expected time of 10 years. I'll see what they say to that.

Me personally, I would use the shortest time possible.

CFO knocked it down to 7 years.

All FAS pronouncements have the blurb below (found on page 10 of 28) and of course "immaterial" is a term in eyes of the beholder aka your CPAs. In our case they have given me a spreadsheet to fill out using total fees and loans compared to what would otherwise be FASB91 deferred fees.

www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs


The provisions of this Statement need
not be applied to immaterial items.