FASB's Current Expected Credit Loss Model For Credit Loss Accounting (CECL): Background, Key Concepts And Implementation Changes

Background, Key Concepts and Implementation Challenges

On June 16, 2016, the Financial Accounting Standards Board (FASB) issued its long awaited Current Expected Credit Loss impairment standard, or CECL. The full FASB Accounting Standards Update 2016-13 can be found here. The new accounting standard changes the impairment model for most financial assets and certain other instruments covered by the new guidance. Substantially all entities will be affected; however, there may be a disproportionate impact to banks, savings associations, credit unions, and financial institution holding companies, since the standard impacts trade and other receivables, debt securities, loans and other related instruments that are customary within such entities. This article focuses on the impact to financial institutions and the allowance for loan losses. Accounting for loan losses is at the heart of financial institution financial reporting. This particular change is arguably the biggest