TALES FROM THE FRONTLINE OF CECL IMPLEMENTATION – PART 3
LEARNING LESSONS FROM CECL IMPLEMENTATIONS INTRODUCTION Welcome to the third CECL Express e-book! 2022 was a year of systemic design, decision making and testing for America’s community banks and credit unions. Now that CECL is finally here, the chosen approaches will be road tested through audits and bank exams. The context is important. CECL was […]
THE NEED FOR SCENARIOS IN CECL
Liquidity and CECL The Financial Accounting Standards Board (FASB) considers a few parameters as necessary for calculating expected credit losses for banks and other financial institutions while implementing the Current Expected Credit Losses (CECL) accounting standard. These parameters are listed below: Current conditions Historical experience and information about past events Reasonable and supportable forecasts CECL […]
DISCOUNT CASHFLOW: WHY IT MAKES SENSE AND WHAT IT NEEDS
IFRS 9 and the DCF methodology The accounting models for credit impairment have received a big boost from the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). The FASB has proposed the current expected credit loss (CECL) accounting standard to calculate expected credit losses in the US. The International Financial Reporting […]
IMPLEMENTING CECL QUICKLY
CECL Implementation After the financial crisis of 2008, it was widely agreed that it had been aggravated by the incurred loss methodology existing then, which delayed the recognition of credit losses. The Financial Accounting Standards Board (FASB) worked along with the International Accounting Standards Board (IASB) to come up with a forward-looking way of measuring […]
CAN THE CALL REPORT BE USED ALONE TO GENERATE CECL?
CECL AND CALL REPORTS The Financial Accounting Standards Board (FASB) issued the Current Expected Credit Losses methodology (CECL), a new accounting standard for estimating allowances for credit losses. This new accounting standard applies to all banks, credit unions, and savings associations that file regulatory reports, which conform to the Generally Accepted Accounting Principles (GAAP) of […]
DEEP DIVE INTO THE WARM METHOD AND AVERAGING EFFECTS ON OUTLIERS
CECL AND THE WARM METHOD The Financial Accounting Standards Board (FASB) recommended the Current Expected Credit Loss (CECL) accounting standard for more timely recognition of credit losses to avoid any financial crisis-like situation in the banking industry. The CECL model is now based on expected losses and not on incurred losses. The FASB does not […]
IFRS 9 IMPLEMENTATION LESSONS FOR CECL
CECL AND IFRS 9 ACCOUNTING STANDARDS The Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) model requires financial institutions to estimate lifetime expected credit losses for their assets and hold capital accordingly. The International Accounting Standards Board (IASB), under its International Financial Reporting Standards 9 (IFRS 9), made significant changes to its accounting […]
MAINTAINING VINTAGE LOSS RATE METHODOLOGY
CECL IMPLEMENTATION AND EARLY ADOPTERS The Financial Accounting Standards Board (FASB), in June 2016, issued the Accounting Standards Update (ASU) No. 2016-13, which introduced the Current Expected Credit Loss (CECL) model. The update moves the accounting for credit losses on various financial instruments to the Expected Credit Loss (ECL) model from the existing incurred loss […]
UNDERSTANDING LOAN CLASSIFICATIONS UNDER CECL
CECL IS APPROACHING In June 2016, the Financial Accounting Standards Board (FASB) provided us with a new expected credit loss accounting standard. The current expected credit losses methodology (CECL) was introduced by this new accounting standard to estimate allowances for credit losses. The effective date of CECL was pushed back by the FASB to January 2023 from January 2021 for smaller reporting companies. For non-public companies, it has been moved from January 2022 to January 2023. The definition of smaller reporting companies is as per the rules laid out by […]
CURRENT WRITE-OFF RATES AND Q-FACTORS IN ROLL-RATE METHOD
THE CECL STANDARD Recognizing the limitations the US Generally Accepted Accounting Principles (GAAP) faced while calculating impairment losses on financial assets, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Updates (ASU) 2016-13 to change its guidance regarding impairment of financial instruments. Also, the ASU introduced the current expected credit loss (CECL) model, which […]
