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 […]
IDENTIFYING ISSUES – LOAN LEVEL ANALYSIS
LOAN LEVEL ANALYSIS AND CECL AUDITING Following the global financial crisis of 2007–09, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016–13, also known as Current Expected Credit Loss (CECL). Using CECL, banks can proactively react to actual and anticipated changes in the credit environment by detecting expected credit losses early. The social […]
CECL DATA SOURCES OVERVIEW FOR SMALL BANKS – FFIEC, FRED, AND FED
CECL STANDARD AND THE BANKING INDUSTRY Small community banks have until 2023 to implement Current Expected Credit Losses (CECL) accounting standards after the Financial Accounting Standards Board (FASB) decided to delay CECL implementation for private and small public companies in 2019. CECL implementation began for large Security and Exchange Commission (SEC) filers in January 2020. […]
PREPARING FOR THE CECL AUDIT – DATA TRANSPARENCY
CECL UPDATES GUIDANCE ON THE MEASUREMENT OF CREDIT LOSSES The Financial Accounting Standards Board (FASB) released a new accounting standard, the Current Expected Credit Losses (CECL) model in June 2016, updating the guidance on the measurement of credit losses for financial assets. The FASB has allowed a staggered adoption date for big and small Public […]
CECL IMPLEMENTATION CHECKLIST FOR SUCCESS
CECL IMPLEMENTATION DURING THE PANDEMIC The Financial Accounting Standards Board’s (FASB) accounting standard, Current Expected Credit Losses (CECL), is one of the more challenging accounting change projects that financial institutions, such as banks, may have witnessed in the past decade. Recent events such as the COVID-19 pandemic have added another layer of challenge to an […]
AN IN-DEPTH EXAMINATION OF THE PROBABILITY-OFDEFAULT/ LOSS GIVEN DEFAULT METHOD
OVERVIEW OF THE PROBABILITY- OF-DEFAULT/ LOSS GIVEN DEFAULT METHOD The Financial Accounting Standards Board (FASB) is flexible when it comes to choosing the applicable methodology for implementing the Current Expected Credit Losses (CECL) standard. It can be a challenge for financial institutions to choose the right method to determine their allowances for credit losses as some of these seem overly simple and some are too complex. The Probability-of-default/ Loss Given Default (PD/LGD) method is one of the simpler methods […]
AN OVERVIEW OF THE 5 MAIN MODELS THAT ARE RECOMMENDED FOR CECL
THE CECL METHODOLOGIES The Current Expected Credit Losses (CECL) methodology for estimating allowances for credit losses came into existence on June 16, 2016, and was issued by the Financial Accounting Standards Board (FASB). CECL replaced the Allowance for Loan and Lease Losses (ALLL) accounting standard. ALLL relied on losses that were incurred but did not […]
WHAT IS CECL AND WHY WAS IT CREATED?
The 2007-2008 financial crisis and credit loss estimation The financial crisis of 2007-2008 demonstrated the inadequacy of existing methods, for adjustment of reserve levels of financial institutions when considering expectations of future market conditions. ALLL only relied on losses that were already incurred and did not factor in future cash flows that would end up […]
CECL SOLUTIONS FOR SMALLER BANKS AND CREDIT UNIONS
SCALE IS NOT THE ANSWER OR IS SCALE THE ANSWER? Is applying SCALE to the CECL problem the right thing to do for small banks and credit unions? CECL allows banks significant flexibility for their choice of method(s) for estimating potential credit losses for capital provisioning. Banks can apply different ‘Expected Credit Loss’ (ECL) methods […]
