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What is CECL? CECL is a regulation introduced by the Financial Accounting Standards Board (FASB) for estimating allowances for credit losses.  CECL is the acronym for Current Expected Credit Losses.

Why did FASB Adopt It?  For financial institutions to maintain counter-cyclical reserves, i.e., maintain reserves when probable credit loss appears low.

What Firms are Impacted?  Although it is primarily targeted toward banks, it also applies to any public business entities that are SEC filers.

What are the Requirements?

  • Under CECL, the allowance for credit losses is a valuation account measured as the difference between the financial assets’ amortized cost basis and the net amount expected to be collected on the financial assets (i.e., lifetime credit losses).

  • To estimate expected credit losses under CECL, institutions will use a broader range of data than under existing U.S. generally accepted accounting principles (GAAP).

    • The data includes information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing how collectible the cash flows of financial assets are.

    • It does allow a financial institution to leverage its current internal credit risk systems as a framework for estimating expected credit losses.

Effective dates:

  • Public business entities that are SEC filers: Fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

  • Other PBEs (non-SEC filers): Fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

  • Non-PBEs (private companies): Fiscal years beginning after December 15, 2020, including interim periods beginning after December 15, 2021.