AUDIT READINESS 2 – LAYING THE INFORMATION OUT TO HELP THE AUDITOR
CECL AND AUDIT READINESS The Financial Accounting Standards Board (FASB) issued the credit loss accounting standard, the Current Expected Credit Losses (CECL), in June 2016. CECL focuses on expected credit losses over the life cycle of a loan and also on the reserves an institution is supposed to maintain to cover those losses. This is […]
THE RELATIONSHIP BETWEEN DCF, PD/LGD AND LOAN PRICING
DISCOUNTED CASH FLOW (DCF) METHOD AND ITS RELEVANCE TO CECL Notwithstanding the 2023 effective date, financial institutions are already working to have systems and procedures in place to implement the Current Expected Credit Losses (CECL) standard. Developing a technique for calculating the allowance for expected credit losses is one of the most important aspects of […]
PROBABILITY OF DEFAULT – POOL VS CREDIT SCORE
PROBABILITY OF DEFAULT (PD) UNDER CECL Most financial institutions, such as banks and credit unions, regard the Probability of Default/Loss Given Default (PD/LGD) technique as a reliable method for determining suitable reserve levels in an institution’s loan and lease loss allowance. The PD/LGD method has quickly become the preferred one in the Financial Accounting Standards […]
