FINRA's BrokerCheck

CECL Model: Navigating the Changes

 

With the extensive impact on financial institutions, it's time to understand the changes needed to transition to the CECL model

On June 16, 2016, final guidance on Financial Accounting Standards Board’s (FASB) Financial Instruments—Credit Losses was released. The new guidance impacts how an institution accounts for credit losses, primarily impacting the Allowance for Losses.

FASB decided that public companies that file with the Securities and Exchange Commission (SEC) will be required to implement CECL starting in 2020 — one year later than anticipated. Other public companies that are not SEC filers will begin in 2021. Private and nonprofit companies will be required to apply CECL beginning in 2022.

The current impairment model is based on incurred losses, and investments are recognized as impaired when there is no longer an assumption that future cash flows will be collected in full under the originally contracted terms. Under the CECL model, financial institutions will be required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of the loan. The transition to the CECL model will require significant and complex data methodology to accurately report information.

 

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 Resources + Insights

CECL FAQs for you

The federal financial institutions regulatory agencies recently issued a frequently asked questions (FAQ) resource to assist institutions and examiners during implementation of CECL.

Click here to view the FAQ document.

 

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